Although the S&P 500 index has strongly rebounded to levels seen before the tariff impacts of April, the U.S. Treasury market has not recovered in step; the yield on 10-year Treasury notes remains above previous averages, highlighting ongoing market concerns about inflation, fiscal policy, and the Federal Reserve's rate path.
Data shows that since Trump announced a temporary halt on "reciprocal tariffs," the U.S. stock market has rebounded sharply, with the S&P 500 recording gains in 15 of the last 22 trading days, fully recovering from the declines caused by tariff policies in early April. Despite Trump maintaining a 10% baseline tariff for most countries, the market has responded optimistically to progress in U.S.-China talks and a U.S.-U.K. agreement.
However, in comparison, the bond market has shown a more cautious attitude. While the yield on the 10-year U.S. Treasury note has retreated from its April high of 4.492% to 4.374% last week, it currently stands at 4.406%, significantly higher than the 4.156% seen before the tariff announcement in early April and the March average of 4.276%.
Analysts point out that this divergence of "strong stocks and weak bonds" stems from unresolved uncertainty about future economic policy directions. Thomas Mathews, Head of Asia-Pacific Markets at Capital Economics, candidly stated, "The Treasury market is not yet fully healed." Goldman Sachs analysts also concur that mere diplomatic softening is insufficient to completely alleviate the macro uncertainties facing the bond market.
Among various disruptive factors, the most notable is the potential inflationary risk posed by tariff policies. Trump's unpredictable trade stance makes it difficult for investors to forecast future price and interest rate trends, thereby demanding a higher risk premium for holding U.S. Treasuries long-term.
This portion of premium is referred to as "term premium," an additional return investors demand for committing funds long-term. According to market data, the term premium on 10-year Treasury notes currently stands at 0.69%, though lower than April's peak of 0.84%, it is still much higher than March's 0.37%.
Overall, while U.S. stocks have swiftly recovered their losses thanks to policy easing rhetoric, the bond market's hesitation indicates that apprehensions about the U.S. fiscal outlook, tariff policy continuity, and the Fed's next moves remain. Investors are in the process of reassessing risk pricing, and the bond market's full "recovery" will likely require time and clearer policy signals.
