April 12, 2025 Market Update

Despite some fluctuations during the month, the 10-year Treasury yield was significantly higher following Friday’s close than it was at the start of April.  At the start of the month, yields declined as investors sought the safety of U.S. government debt—consistent with past episodes of rising uncertainty and falling stock prices.  But that pattern didn’t hold.  In a sharp and surprising reversal, yields on long-duration Treasuries surged midweek, with the 10-year climbing above 4.4% and the 30-year briefly touching 5%.  Yields then fell modestly on softer-than-expected inflation data and investor concerns over the escalating trade war.

Typically, when equity markets drop sharply on fears of slower growth or recession, Treasury yields fall, not rise.  That’s what made the bond market’s behavior last week so notable.  The upward movement in yields suggests that markets may be grappling with something more complex than a traditional flight to safety.  The source of that movement remains in question.

One possibility is growing concern about America’s fiscal outlook, as additional tax cuts are debated in Congress and questions emerge about the demand for new U.S. debt.  Another is the repricing of inflation risk.  While consumer demand may weaken, tariff-induced price increases could persist.  The rise in yields may also reflect the unwinding of the so-called basis trade, a hedge fund strategy that profits from the spread between Treasury bond prices and futures contracts.  Finally, there are growing questions about whether the Federal Reserve will—or even can—step in if tariffs cause the economy to falter.

Whatever the reason, the bond market’s message this week was clear: uncertainty is rising, but not in familiar ways.

That’s all for now.  Have a great weekend and invest wisely my friends.