Bond Traders Relieved on Trump's Trade Stance
On the first full day of Trump's second term, bond yields plunged to their lowest levels of the year, stocks soared, and the dollar rebounded. Optimism prevailed as Trump deferred immediate tariffs on China and hinted at a gradual approach towards Mexico and Canada.
Concerns over inflation and a potential trade war have pushed US yields higher in recent months. However, Tuesday's decline brought 30-year rates below 5%, easing fears for now.
Analysts from Goldman Sachs and Societe Generale caution against overreacting to Trump's initial statements. They emphasize his history as a businessman who understands the benefits of low rates.
The easing of yields was reflected in currency markets, with the Bloomberg Dollar Spot Index stabilizing after an initial surge on rumors of tariffs on Mexico and Canada. The Canadian dollar and Mexican peso also recovered some of their earlier losses.
Despite the relief, analysts remain cautious. The Federal Reserve meeting next week could provide insights into future interest rate policy. Some experts predict a potential "burst of inflation" in the coming years.
ING and Nomura view the rally as temporary, arguing that Trump's inflationary policies and growing deficit will continue to exert upward pressure on US Treasury yields.