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(Bloomberg) -- Treasuries joined most other government bond markets in sending long-term yields lower as trade tensions continue to stoke haven demand.
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Ten- to 30-year yields reached session lows during the US morning, led by bigger yield declines in most European government bond markets. Those were spurred in part by reports that the European Commission is set to announce a provisional list of tariffs against the US on Thursday. US short-term yields, meanwhile, pared their increases ahead of Wednesday’s Federal Reserve interest-rate decision.
The US 30-year yield declined as much as four basis points to 4.76%, its lowest level this week. The two-year pared about half of an increase of as much as four basis points. The shrinking gaps between short- and longer-term yields were larger in most European bond markets than in the US.
While US central bank policymakers are expected to leave their target range for the federal funds rate unchanged at 4.25%-4.5% in the decision to be announced at 2 p.m. in Washington, Fed Chair Jerome Powell in a news conference 30 minutes later may shed light on the outlook for rate cuts. Their quarterly forecasts published in March showed a median expectation for two quarter-point reductions by year-end, while derivative markets are pricing in roughly three.
The Fed meeting will “likely shape expectations more than usual as it is the first decision after the reciprocal tariff announcement,” said Erik Liem, a rates strategist at Commerzbank. “Verbal guidance will be key, as markets have postponed expectations” for monetary easing, he said.
US President Donald Trump’s April 2 unveiling of protectionist agenda led economists to forecast slower economic growth and higher inflation in coming quarters. Still, expectations for Fed policy have been volatile in response to mixed US economic data, and central bank officials have said there’s no urgency to cut rates.
For investors, it’s a question of how to weigh the economic pessimism that has been seen in some recent surveys against the resilience in top-tier measures of employment. While US consumer confidence fell in April to an almost five-year low, job creation exceeded all economist forecasts compiled by Bloomberg.
What Bloomberg Strategists Say:
“The Fed may be forced to cut rates this year if tariffs cause a recession. But that could mean accelerating inflation expectations push longer-term yields higher.”