Trump's Tariff Tango: Why US Treasury Bonds are Booming and Inflation Fears Soar

Is the "Economic Self-Harm" Strategy Backfiring? Analyzing the Market's Reaction to Potential Tariff Wars and the Implications for Taiwan.

On April 4th, US Treasury bond prices experienced a significant surge across all maturities. The benchmark 10-year Treasury yield plunged to its lowest level since last October, breaking the crucial 4% threshold. The weekly decline marked the steepest drop since August of the previous year. This financial phenomenon is largely attributed to the "reciprocal tariffs" strategy, proposed by Trump, potentially triggering retaliatory measures from Beijing, consequently fueling a surge in safe-haven buying.

This market movement has led to a heightened risk perception of an economic recession, prompting traders to increasingly bet on the Federal Reserve (Fed) implementing up to four interest rate cuts this year.

Yields Plunge Across Maturities

According to Dow Jones Market Data, the 2-year Treasury yield, which is highly sensitive to Fed policy, declined by 5.2 basis points to 3.672% on the 4th. This represents a substantial weekly decrease of 23.6 basis points, the sharpest weekly drop since September 6th of the previous year. This decline marks the third consecutive week of decreasing yields. Remember, bond prices and yields move in opposite directions: a single basis point equals 0.01%.

This development, although focused on the United States, has indirect repercussions for the global economy, including Taiwan. The island's strong trade ties with both the US and China mean that any economic volatility in these countries has the potential to impact Taiwan's economic performance, making it crucial for investors and policymakers in Taiwan to monitor these developments closely.