Investors anticipate tariff impact on U.S. inflation, leading to turmoil in bond market

From Yahoo Finance: 2025-04-20 12:00:00

Traders anticipate tariffs to impact U.S. inflation for up to 12 months, leading to turmoil in the Treasury market. The uncertainty over tariffs, risks of a U.S. recession, and diminished attractiveness of American assets raise concerns about inflation, interest rates, and home prices. Trade talks and economic data releases will be closely watched for any signs of progress or further volatility.

The average U.S. tariff on imported goods surged from 3% to 10.3% due to actions by the Trump administration. Estimates suggest the weighted average tariff rate on U.S. imports reached 33%, causing uncertainty among investors. The impact of tariffs on inflation remains a key concern, with potential long-term effects on the bond market and investor sentiment.

Inflation traders predict a shock to future price increases lasting at least 12 months due to tariffs. Tariffs could push annual core CPI rates as high as 3.7%, impacting Treasury inflation-protected securities (TIPS). Investors remain cautious about the effectiveness of TIPS as a hedge against inflation, as the bond market faces potential selloffs and rallies amid economic uncertainty.

The fluctuating bond market reflects concerns over inflation, trade tensions, and the global economy’s impact on U.S. government debt. While Treasurys have seen both lower yields and historic surges in long-term yields, their safe-haven appeal remains intact. Questions persist about Treasurys’ status as a secure asset, with uncertainty surrounding foreign investment and market stability.

Upcoming economic data releases will shed light on the impact of tariffs on the U.S. economy. Market participants are closely monitoring key indicators such as the University of Michigan’s consumer-sentiment index and S&P Global’s purchasing managers’ indexes. The soft demand at a recent TIPS auction raises questions about the market’s perception of safe-haven assets and the impact of ongoing trade tensions.

Read more: Investors are eager for tariff deals. They might get more tumult in bonds and stocks instead.