10-year yields in the US have decreased this week, touching the 200-day moving average. This movement indicates a market that appears less concerned about tariff threats, with recent softer economic data suggesting inflation pressures may not be substantial when tariffs are implemented.
Since Trump’s election bid last October, market reactions to tariff discussions have evolved. Yield surges occurred with tariff talk, but now traders are responding differently to ongoing headlines, resulting in a shift in sentiment towards potential rate cuts.
Fed funds futures previously reflected expectations of only one rate cut this year. Currently, traders are pricing in approximately 58 basis points of cuts, with a projected cut in July.
The recent drop in yields is significant as they test the 200-day moving average after breaching the 100-day moving average early in the week. If this level is exceeded, yields might revisit December’s low of around 4.12%.
Future US economic data will play a vital role, particularly the non-farm payrolls release scheduled for next week. Market movements may fluctuate until this data is released, influencing conviction regarding rate cuts and yield trends.
A shift in expectations is apparent. Market participants who once reacted sharply to tariff threats now appear to be recalibrating their assumptions. The earlier pattern of rising yields on trade-related headlines has faded, replaced by a different approach to pricing future policy moves. Softer economic data has contributed to this adjustment, fostering a belief that inflationary pressures may remain contained.
Yields hovering at the 200-day moving average suggest traders are reevaluating risk. The decline earlier in the week, breaking through the 100-day moving average, highlighted growing confidence that interest rates could remain under pressure. With the Fed funds futures market now reflecting nearly 58 basis points of easing, far more easing is expected than what was priced in merely weeks ago. A potential reduction in rates as soon as July has become the prevailing stance.
Further declines in yields would not be surprising if the 200-day moving average fails to hold. December’s low of 4.12% may come back into view, especially if upcoming economic data reinforces dovish expectations. Next week’s job report will be a focal point, and its outcome could cement or challenge this shift in sentiment. The market will not wait passively—pricing will adjust swiftly ahead of the release, with volatility likely surfacing as traders position for potential surprises.
In the short term, reactions to data prints will be decisive. If employment numbers show resilience, some of the recent moves may unwind, tempering rate cut bets. Conversely, if signs of a slowdown emerge, conviction behind further easing will strengthen. The shift in how yields respond to economic releases makes it imperative to remain agile. Trading conditions will be dictated by how convincingly data supports—or contradicts—the belief that loosening policy is needed.
Momentum has already changed directions several times this year, and expectations are unlikely to remain static. The market’s attention will remain fixed on upcoming figures, but the broader shift in reaction to policy changes and data suggests a more nuanced approach is now prevailing.
