By Sarupya Ganguly
BENGALURU (Reuters) – Concerns for the safe haven status of U.S. Treasuries are rising with benchmark 10-year yields expected to drift sideways over the coming year, pinned between trade war-driven recession and inflation, according to a Reuters poll of bond strategists.
Since U.S. President Donald Trump’s April 2 reciprocal tariff announcement, the 10-year Treasury yield has whipsawed in a 75-basis-point range, plunging to a six-month low and then rebounding to a two-month high within a week, driving a key bond volatility index to an 18-month high.
Battered investor sentiment has only partially recovered since an earlier 90-day tariff reprieve and a U.S.-China trade truce announced on Monday. Interest rate futures are now pricing two Federal Reserve rate cuts this year compared to three just a few days ago.
Over 54% of bond strategists, 19 of 35, in a May 8-13 Reuters survey said they were concerned about the traditional safe haven status of U.S. Treasuries, which provide the benchmark for pricing in global capital markets.
That was up from about 47% in an April poll, and in line with the over-55% of FX strategists who expressed similar worries about the U.S. dollar a week ago.
“I believe the appeal of Treasuries as a safe haven has eroded due to two key factors: the potential for a significant increase in supply and the (Trump) administration’s tariff policies,” said Jabaz Mathai, head of G10 rates and FX at Citi.
“Right now, tariffs are the dominant driver, but as we move through the rest of the year, fiscal policy will also come into play,” he said.
“If the administration manages to push through tax cuts — and not just extensions of the 2017 cuts, but also other promises like eliminating taxes on Social Security benefits, tips and possibly lowering corporate taxes — that could further unsettle investors.”
U.S. debt currently stands at $36.2 trillion, according to the Treasury Department.
“Investors are more worried now about the long-term fiscal situation. It doesn’t look like they have a plan to pay what they owe or at least keep the fiscal deficit from increasing,” said Lars Mouland, chief rates strategist at Nordea.
Despite contracting last quarter on a record-high trade deficit driven by businesses scrambling to get ahead of tariff hikes, the world’s largest economy is chugging along, leaving policymakers in no hurry to ease rates, recent official data suggest.
But sagging investor and consumer sentiment has markets betting on an economic slowdown.
Asked which would have the bigger impact on their yield forecasts, a near-60% majority – 19 of 33 fixed-income strategists, chose recession risks over higher inflation.
“As we expect the Fed to hold rates steady until December in our baseline forecast, we are clearly biased for the Fed choosing to fight the inflation side of its mandate,” said Steven Zeng, senior U.S. rates strategist at Deutsche Bank.
“But in the context of our 10-year yield forecast, whether or not the U.S. enters into recession this year will have the bigger impact.”
Median forecasts from over 50 analysts in the survey showed the U.S. 10-year yield, currently 4.46%, would decline to 4.26% in three months, tread sideways to 4.27% at end-October and to 4.25% in a year.
“The U.S. administration is realizing the economic harm high tariffs can cause, and it appears they’re probably more sensitive to bond yields than equity markets,” said Citi’s Mathai.
“So it would seem logical we are past the peak in tariffs and the downside to the economy will probably be less severe than we thought in the beginning of April.”
Mathai added: “We might be stuck in a range over the next few months, but by the time we turn the corner into 2026, bond yields will likely be lower than they are now.”
The interest rate-sensitive U.S. 2-year yield was forecast to decline more sharply, by 30 bps to a median 3.69% in six months and to 3.50% in a year.
(Reporting by Sarupya Ganguly; polling by Purujit Arun and Aman Soni; editing by Jonathan Cable, Ross Finley and Mark Heinrich)
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