NEW YORK: US Treasury yields declined on Friday amid hopes of an easing in the US-China trade war and as investors weighed the possibility that the Federal Reserve could pivot toward lower interest rates as economic activity slows.
Friday’s move in yields - which decline when bond prices rise - consolidated a trend this week of tentative optimism that the market may be stabilizing after weeks of sharp price fluctuations caused by US President Donald Trump’s on-again, off-again stance on tariffs.
Remarks from the White House this week pointed to a potentially softer US stance on tariffs, particularly concerning China. Trump said his administration was talking with China to strike a tariff deal and that Chinese President Xi Jinping had called him. Beijing, however, disputed that negotiations were taking place.
“I am going to give them the benefit of the doubt that they’re making progress on tariffs,” said Tony Farren, managing director at Mischler Financial Group. “I think they’re trying to regain their footing ... but if by next Friday there is no trade deal with any country, the markets are going to be upset.”
Separately, remarks from Fed officials on Thursday raised the possibility the US central bank may be open to lowering interest rates if the inflationary impact from tariffs is temporary and if the economy weakened quickly, which injected some cautious optimism in the Treasury market.
Those remarks came about one week after a speech by Fed Chair Jerome Powell that left investors worried that the central bank would be reluctant to cut rates.
“I think that’s a very good sign that the Fed is paying attention and they’re going to do what’s right for the economy and not what’s bad for Trump,” said Farren.
The release of the University of Michigan Surveys of Consumers on Friday showed US consumer sentiment ebbed for a fourth straight month in April amid concerns about the economic impact of tariffs. The Consumer Sentiment Index came in at 52.2 this month, higher than a reading of 50.8 two weeks ago, but down sharply from 57.0 in March.
“The final release of the University of Michigan’s consumer survey was a bit better than the preliminary estimate, but still terrible,” said Bill Adams, chief economist for Comerica Bank, in a note. “Consumers are freaked out about tariffs, the stock market, inflation, and recession fears,” he said.
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