Recent US tariff policies have caused significant shifts in Treasury yields and broader market sentiment. The 10-year Treasury yield, for instance, rose 2.8 basis points to 4.414% following a US-EU trade deal, while the 30-year bond yield increased 3.3 basis points to 4.9616% on Monday. This rise occurred as the Federal Reserve prepared for a policy meeting, where no interest rate changes were anticipated due to officials' desire to assess tariff impacts on inflation.
However, earlier in the year, tariff announcements by former President Trump led to volatility. For example, in March, the 10-year Treasury yield initially rose 3 basis points to 4.21% but had previously fallen to 4.106%—its lowest since October—as investors moved into safe-haven Treasuries, pushing yields lower amidst fears of a global trade war. The dollar index also fell 0.83% at that time.
The market's reaction to trade deals has been mixed. While some analysts, like Phil Orlando of Federated Hermes, noted that removing uncertainty and a 15% tariff rate (lower than initial projections) brought relief, others, such as Gerry Fowler of UBS, cautioned that initial market rallies reflecting relief might be followed by pain as the reality of high tariffs sets in. The US's effective tariff rate, estimated at 17.3% by Yale University’s Budget Lab, is the highest since 1935, highlighting the significant impact of these policies.
Despite the recent US-EU trade deal, which US President Donald Trump hailed as possibly the "biggest deal ever reached," its reception has been mixed. European Commission President Ursula von der Leyen called it a "breakthrough," while France’s Prime Minister Francois Bayrou saw it as the EU "submitting." Germany’s biggest industry body warned it was an "inadequate compromise" that could harm its export-oriented industry. Such varied reactions underscore the complex and often contradictory impacts of tariffs and trade agreements on global markets and economies.
