Concerns about the safe-haven status of US Treasury bonds are growing, with the 10-year yield expected to move flat within a year, according to a Reuters survey of bond strategists. Among the reasons are the pressure from the US-China trade war that has sparked instability, as well as concerns about inflation and the US fiscal position.
Since President Donald Trump announced retaliatory tariffs in early April, the 10-year yield has jumped 75 basis points from a six-month low to a two-month high, triggering a surge in bond market volatility to an 18-month high. Investor sentiment has only recovered slightly despite a temporary tariff truce and the recently announced trade peace agreement.
According to a Reuters survey, 54% of 35 bond strategists expressed concern about the “safe haven” status of US bonds, up from 47% in April. This is also in line with the views of currency strategists who are becoming skeptical about the strengthening of the US dollar. The main causes of concern are the possibility of an increase in bond supply and the Trump administration’s aggressive fiscal policies.
The US national debt is now $36.2 trillion, and a new tax plan that includes the elimination of the Social Security benefit tax and a corporate tax cut is expected to add pressure on bonds. This has dampened investor interest in US bonds as a hedge in global financial markets.
Most experts expect the 10-year yield to fall slightly from 4.46% to around 4.25% in a year, while the 2-year yield is expected to fall more sharply to 3.50%. While the Fed is expected to keep interest rates on hold until December, the market is more concerned about recession than inflation, a sign that investors are starting to anticipate a deeper economic slowdown.
