Inflation fears dominate as Treasury bonds traders enter holiday-shortened week

Bond traders across the US are walking into a holiday-shortened trading week already cornered by inflation anxiety, as fresh economic data threatens to stretch yields even further.

According to Bloomberg, the pressure is mounting right after President Donald Trump pushed his tax-heavy legislative package through the House last week, causing long-term Treasury yields to spike.

But any sense of stability vanished on Friday when Trump posted that he’d impose a 50% tariff on imports from the European Union starting June 1, sending yields down again and exposing just how fragile the market still is.

The impact was immediate. The 30-year Treasury yield fell 3 basis points to 5.031%, the 10-year dropped by 4 basis points to 4.509%, and the 2-year edged slightly lower to 3.993%.

In the bond market, that’s movement that traders don’t ignore—especially not when it’s caused by social media posts from the Oval Office. Trump’s explanation was: “The European Union has been very difficult to deal with,” he wrote on Truth Social, before adding that the trade negotiations were “going nowhere.”

Trump’s tariffs rattle markets as Apple dragged in

Things got messier when Trump tossed Apple into the mix, posting that the company would be required to pay a 25% tariff on iPhones manufactured outside the US The stock tumbled, and once again, bond traders ran for safety. Treasury prices climbed as a result, pulling yields lower for the second time in a week that had already seen record-breaking movement.

Peter Boockvar, the chief investment officer at Bleakley Financial Group, weighed in on the administration’s heavy-handed economic tactics, writing, “Capitalism works best when it is left alone as businesses and consumers are left free to trade goods and services at prices agreed upon by both sides… Unfortunately we keep straying from that basic economic concept with a muscled top-down approach.”

By Tuesday of the previous week, bond markets were already on edge after Moody’s downgraded the US credit outlook, citing swelling deficits and the rising cost of servicing debt. That decision sent the 30-year yield past 5.1%, a level not seen since 2023, and pushed the 10-year over 4.5%. 

But the late-week drop—sparked by Trump’s tariff announcements—highlighted how fast the market is responding to political risk instead of economic fundamentals.

Economic calendar packed as inflation data looms

Markets are closed Monday for Memorial Day, but that’s where the calm ends. Beginning Tuesday, traders will have to process a string of high-impact reports, including new data on durable goods, capital goods, housing prices, and consumer confidence.

The Federal Reserve’s preferred inflation gauge—core PCE—is due Friday, along with the University of Michigan’s consumer sentiment survey, which has already shown inflation expectations hitting levels not seen in decades.

Kathryn Kaminski, chief strategist at AlphaSimplex Group, summed it up: “Fixed income has been really difficult to trend this year as it’s been very back and forth with yields. We need more clarity on many things, including on inflation.”

Fed officials will also be all over the calendar. Neel Kashkari from Minneapolis and John Williams from New York are speaking Tuesday. On Wednesday, Tom Barkin (Richmond), Austan Goolsbee (Chicago), Mary Daly (San Francisco), Lorie Logan (Dallas), and Adriana Kugler from the Fed Board will all make public remarks. Goolsbee returns on Thursday.

Also on the radar are bond auctions. Tuesday will see auctions for 6-, 13-, and 26-week bills, and two-year notes. On Wednesday, the Treasury will offer 17-week bills, floating-rate notes, and five-year notes. Thursday wraps with 4- and 8-week bills and seven-year notes.

Traders have little breathing room. With Trump back in the White House, tariffs back on the table, and inflation data waiting at the end of the week, the Treasury market is once again running hot. Everyone in the game is watching for numbers, watching for posts, and trying to price in what’s coming next.

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