(Bloomberg) — US government bonds erased gains that sent the five-year Treasury note’s yield to the lowest level since October, led by rising European government bond yields after a report that the bloc is preparing to respond to any new tariffs.
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Yields on Wednesday moved higher by about two basis points across maturities by midday in New York, as German and other European yields rose. That reversed earlier action in the Treasury market, which had seen the five-year note’s yield fall as low as 3.87% as investors looked ahead to President Donald Trump tariff announcement and the prospect of a hit to economic growth.
Support for Treasuries also waned as US stock benchmarks recovered. The S&P 500 erased a 1% drop led by shares of Tesla Inc., which rebounded after a report its chief executive Elon Musk’s advisory role in the US administration will end soon.
Bond and foreign-exchange markets “look very disjointed and contradictory” in a way that’s likely to continue until the tariffs agenda becomes clear, James Athey, a portfolio manager at Marlborough Investment Management, said.
Treasury yields reached session lows in early US trading, despite a report showing private-sector job creation in March exceeded economist estimates.
Markets are on tenterhooks ahead of the tariffs announcement at 4 p.m. in Washington, which follows months of threats and speculation on the size of possible trade restrictions. Several proposals are said to be under consideration, including a tiered tariff system with a set of flat rates for countries of either a 10% or 20%, Bloomberg reported.
“Both the number and the openness to negotiate will be key,” said Evelyne Gomez-Liechti, a strategist at Mizuho International. “The more the US administration is open to negotiating could in fact mean that the 20% may not materialize and be lower.”
The initial drop in yields was aided by a report that China has taken steps to restrict local companies from investing in the US, a move that could give it more leverage for potential trade negotiations.
While China has previously placed restrictions on some overseas investments for reasons linked to concerns about national security and capital outflows, the new measures underscore tensions playing out between the world’s two biggest economies as Trump ramps up tariffs.
