A quick update on US rates – Treasury yields fall with markets factoring in aggressive rate cuts on mounting growth concerns The US treasury yields fell sharply on Thursday on worries that President Trump’s sweeping tariffs would likely bring more pain for the US economy. In line with moves lower in treasury yields, the dollar index also tanked. This was in anticipation of more aggressive easing by the Fed this year. This can be reflected from a fall in TIPS yields (treasury inflation protected securities). For this, we decompose the 10Y treasury yields into TIPS and implied breakeven yields (this gives an idea around evolving inflation expectations). Inflation readings in the US have been still away from the 2% target, with inflation expectations remaining elevated (as evidenced from the University of Michigan consumer sentiment). As seen below, a sharp fall in treasury yields is driven by moves lower in the 10Y TIPS yield (market expected rate of interest after accounting for inflation), while breakeven inflation expectations have been broadly stable. The futures markets are currently pricing in around 90 bps easing this CY as against the latest dot-plot signaling 50 bps easing.
