Summary: The yield on the 10-year US Treasury note fell to 4.2% on Friday, approaching the lowest in over two weeks as markets continued to assess risks of an economic slowdown and how the Federal Reserve would react. The Fed held its rates unchanged this week but its dot-plot indicated that policymakers still foresee two 25bps rate cuts this year amid lower growth and higher unemployment. As a result, traders began to price in three rate cuts by the Fed this year, up from prior expectations of just two cuts before the decision.
The reality is US economic data are diverging wildly, fuelling a debate over whether rising anxiety from President Donald Trump’s trade policies will push a moderating economy into a serious downturn.
Surveys of sentiment among households and businesses, known as “soft data,” are warning of a marked slowdown ahead as Trump pushes forward with tariffs and steep cuts to federal spending. But “hard data” from government statistics, like employment and manufacturing, suggest those fears — potentially including stagflation or even recession — are overblown.
The mixed signals are causing jitters across Washington and Wall Street on what lies ahead for the world’s largest economy — which, in a matter of weeks, has shifted from global outperformer to the top source of uncertainty. Federal Reserve officials lowered their forecast for annual growth this week by the most since 2022, while the OECD says US trade policy will slow economic activity around the world.
Much of the anxiety can be traced to surveys of consumer attitudes from the University of Michigan and The Conference Board, which have both cited concerns that tariffs will lead to higher prices. Executives from Nike Inc. to Delta Air Lines Inc. have noted the trend, contributing to a multi-trillion dollar wipeout in stocks in the past month.
Australia’s 10-year government bond yield rose to around 4.44%, mirroring an upward shift in U.S. bond yields, as the Federal Reserve indicated no rush to cut interest rates. Domestic yields were also supported by hawkish signals from the Reserve Bank of Australia.
Earlier this week, RBA Assistant Governor Sarah Hunter noted that the central bank remained more cautious than markets about further rate cuts, after its first reduction in over four years last month. She also emphasized the need to monitor U.S. policy decisions and their potential impact on Australian inflation.
Market opinions on the timing of the next policy easing remain divided, with some analysts anticipating a move as early as May, while others project a cut in July or August.
Exhibit 1. Australian 3Y/10Y Bond Yield
Exhibit 2. AU and US Bond Yields Spread
Exhibit 3. Global Bond Yields
