10-year yields in the US down to the lowest since October

What a difference six months can make in terms of how the market perceives things. Back in October, traders took to the prospect of Trump’s presidency and tariffs in the fear that it will stir up inflation. There weren’t too much concerns about the health of the global economy with the US also looking poised for a soft landing and the Fed still squeezing in rate cuts.

Fast forward to this week and suddenly, the script has flipped on its head. Global growth worries and anxiety about how this will all continue to play out is outweighing any potential impact to inflation.

The flight to safety in bonds with heavy selling in equities so far today shows how risk sentiment is being beaten up following Trump’s tariffs announcement.

The biggest blow is arguably the steep tariffs on China but there also big ones announced all over as the 10% tariffs bar turned out to be the minimum.

Volatility has returned to markets in a big way but that doesn’t mean that we’re capturing the full extent of the impact of Trump’s tariffs here. There’s still so much uncertainty up in the air and it will take some time for liquidity to make its way back, so that will exacerbate some of the market moves in the meantime.

In any case, the bond market is suggesting that fear is prevailing and with the drop in yields we are also seeing USD/JPY teetering closer towards 147.00 on the day.

This article was written by Justin Low at www.forexlive.com.