10-year Treasury yield drops to 4.25%, the lowest level since early December

The benchmark 10-year Treasury yield fell 4 basis points to 4.25% after Trump announced the expansion of trade tariffs to the EU. The 2-year Treasury yields fell 2 basis points to 4.07%.

The 10-year Treasury yield fell to its lowest level since December as the market prepared for the implementation of Washington policies. The yields dropped to 4.25% after Trump announced he would expand the scope of the trade tariffs. 

10-year Treasury yield drops to 4.25% amid economic uncertainties 

The 2-year Treasury yield fell 2.6 basis points to 4.071% from 4.097% on Wednesday. The closing level was the lowest since October 2024. The 30-year Treasury yields also declined by 4.9 basis points from 4.555%, the lowest level since December 11. The 10-year Treasury yield fell for a sixth day in a row, losing 29.5 basis points on its eleven-week low. 

10-Year Treasury Yield drops to 4.25%, the lowest level since early December 🥳🍾 pic.twitter.com/WxixlQ00Ih

— Barchart (@Barchart) February 27, 2025

On Wednesday, President Donald Trump announced that trade tariffs against Canada and Mexico would go into effect next week. He added that the tariffs suffered a one-month delay and would soon apply to the European Union. 

Trump clarified that his administration would impose a 25% duty on goods from the European Union. Markets responded to his announcement as investors bid up fixed-income prices. Recent data suggesting the cooling of the United States economy further fueled the decline in yields. 

Investors expressed their concerns over the trade war and the current risks facing domestic growth. Michael Brown, a research strategist at Pepperstone, suggested that the president could be prepared to sacrifice economic growth to reduce government spending. He added that Trump’s administration might go ahead with the tariffs to balance perceived trade unfairness and not use them as a negotiation tool even if the policies presented macro and market risks.

Housing data released on Wednesday revealed that new home sales data fell 10.5% to 657,000 in January, which was lower than 734,000 in December. The Conference Board’s latest consumer confidence survey recorded 98.3 this month, a decline from 105.3 in January. 

The Philadelphia Federal Reserve also revealed that its index fell to -12.9 in February, the lowest level since April 2023. It added that its sales revenue fell 15 points to -12.7, the lowest level since May 2020. 

Market analysts weigh in on the February data, citing recession risks 

The chief economist at FWDBonds highlighted that the economy is about to tumble as Washington’s policies caused investors to lose confidence. Mark Hackett, the chief market strategist at Nationwide, commented that weakening economic data pushed investors out of equities and into bonds.

David Russel, global head of market strategy at Trade Station, said consumers and executives were concerned about the tariffs and government spending cuts. He noted that the economy had yet to recover from the post-pandemic inflation, and Trump’s policies could cause more harm. Russel highlighted that most of the data from the past month have signaled the risk of an economic slowdown or recession. He added that the bond market could experience more trouble in the future.   

Traders await the January Personal Consumption Expenditures index, which is set for release on Friday. The Federal Reserve historically used the PCE to guide central bank interest rate decisions. The central bank’s policy committee is scheduled for its next meeting in three weeks to discuss possibilities for further rate cuts.

Federal Reserve Chair Jerome Powell revealed earlier this month that the Fed would not hurry to make further rate cuts. He noted the Fed cut the rates a full percentage point after a positive consumer price index report.

Josh Jmaner, investment strategist at ClearBrdge Investments, commented the report put the final nail in the coffin for the rate cut cycle. He added that he believed the Fed would not make any further cuts. Powell also expressed the Fed’s hawkish stance against further rates, saying it was important to understand the policy changes and their effects on the economy.  

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