On Friday, U.S. Treasury yields saw a modest rise, reversing earlier gains as Federal Reserve Chair Jerome Powell highlighted the potential inflationary impact of recently announced tariffs. The escalating trade tensions have raised concerns about economic growth, pushing the 2-year Treasury yield to a year-to-date low, with a drop of 22 basis points to its lowest since 2022. Despite a slight recovery, yields fell by 23 basis points over the week.
Yields across various maturities fell less than 6 basis points by the end of the trading day, flattening the yield curve. The 10-year Treasury yield approached 4%, momentarily dipping 17 basis points to 3.86%, marking its lowest since October of the previous year. The market hit a low ahead of the March employment data release, extending the risk-averse sentiment triggered by the tariff announcement earlier in the week.
Investors' expectations for a Federal Reserve rate cut have intensified, with projections for a 100 basis point reduction by year-end, up from 94 basis points. The bond market showed limited reaction to the employment data but lost momentum after Powell noted the lasting inflationary impact of tariffs and reiterated the Fed's cautious stance on rate cuts.
