China’s tariffs escalate trade war, send US Treasury yields lower

US jobs report exceeds expectations

Fed rate cut expectations rise on recession fears, tariffs impact

NEW YORK, – U.S. Treasury yields dropped on Friday after China countered against U.S. President Donald Trump’s outsized import tariffs plan, although the declines eased somewhat after a solid U.S. jobs report.

additional tariffs of 34% on U.S. goods on Friday, the most serious escalation in a trade war with Trump that has fueled global recession fears and led to the steepest stock market drop in several years, prompting a flight to safe-haven assets by investors.

But yields pared some declines after the Labor Department said nonfarm

by 228,000 jobs last month, well above the forecast for a gain of 135,000, after a downwardly revised rise of 117,000 in February, while the unemployment rate ticked up to 4.2% from 4.1%.

“There’s not a lot to dislike about the employment report,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

“The Fed doesn’t meet for another month, but when it does it can comfortably cut if tariffs are still in place at that time, but it won’t likely feel a sense of urgency to.”

Movement in yields was choppy during Fed Chair Jerome Powell’s remarks to a journalists’ conference in Arlington, Virginia, but remained sharply lower on the session.

Trump’s tariffs are “larger than expected” and the economic fallout including higher inflation and slower growth likely will be as well, but the central bank has time to wait to see how the data unfolds before determining the monetary policy response.

Investors fled to the safety of bonds globally after Trump revealed on Wednesday his long-anticipated tariffs plan, which included a 10% minimum tariff on most goods imported into the country, with much higher duties on dozens of countries.

“The volatility that we’re seeing clearly is a function of uncertainty, the uncertainty level remains extraordinarily high right now with the wide range of outcomes.” said Bill Merz, head of capital markets research at U.S. Bank Asset Management in Minneapolis.

“When we had the tariff announcements, there was obviously a clear and significant negative reaction to that. And since then, investors in general, and the market reaction has really been piling on to the idea that there could be additional negative announcements or, to the contrary, positive announcements.”

The yield on the benchmark U.S. 10-year Treasury note fell 8.3 basis points to 3.972% after falling to a six-month low of 3.86% and was poised for its biggest weekly drop in about eight months.

The yield on the 30-year bond tumbled 10.1 basis points to 4.383% after falling to a four-month low of 4.331%.

Recession fears have increased

the Fed will be more aggressive in cutting interest rates this year. Expectations for a cut of at least 25 basis points at the central bank’s May 6-7 meeting now stand at 31.8%, according to CME Group’s

, up from 21.9% in the prior session.

Markets are currently pricing in 91 basis points of cuts for 2025, according to LSEG data.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, declined 8.3 basis points to 3.605% after hitting 3.465%, its lowest level since early September 2022 and was on pace for its biggest weekly drop in about seven months.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 32.6 basis points.

In a post on his media platform on Friday directed at investors, who he said were investing massive amounts of money in the U.S., Trump said his policies would never change.

In the wake of the tariffs, multiple analysts have upped their forecasts for a recession, including Goldman Sachs and J.P. Morgan, as the latter upped the probability of a recession in the global economy to 60% from 40% by the end of this year.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities was last at 2.383% and was poised for its lowest close of the year.

The 10-year TIPS breakeven rate was last at 2.168%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

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