Bond traders will be trying to gauge who blinks first, will it be the Fed or President Trump? If both stick to their current stance every Treasury auction is a landmine which investors will fear stepping in to.
Yields on the benchmark 10-year Treasury have tumbled about 40 basis points this year, briefly pushed below 4% Monday by President Donald Trump’s barrage of tariffs that economists say raise the risk of a recession.
In contrast, comparable rates in both Europe and Japan have gone up. In Germany, the 10-year bund at 2.61% reflects the prospect of a flood of bond issuance as the government ramps up defense spending. Meanwhile, the rate on 10-year Japanese bonds has soared after spending years around zero and is now around 1.25% as investors brace for tighter monetary policy there.
While both are still well below Treasury yields, they’re at levels that makes them look more attractive than Treasuries to European and Japanese investors who hedge their dollar exposure when buying US securities. That might entice investors to shift allocations to their home markets, where the policy outlook appears more stable.
