US Treasuries Rally On First Trading Day Under Donald Trump Presidency

On the first trading day following Donald Trump's inauguration as President of the United States, US Treasuries experienced a notable rally, reflecting market optimism and caution about impending trade relations. Investors responded positively to the lack of immediate announcements regarding new tariffs on the US' top three trading partners, signaling a possible more measured approach to economic policies.

Positive Investor Sentiment

During the trading session, ten-year US Treasury yields dropped by as much as nine basis points, suggesting that many were relieved by the absence of drastic tariff measures that had initially been expected. Shoki Omori, a chief strategist at Mizuho Securities, pointed out that the market had been worried about significant tariff announcements right from the start. He mentioned, "The absence of that, especially on China, is driving a relief rally for Treasuries." This sentiment seems to be stemming from the assumption that Trump's administration may prioritize more moderate and strategic moves rather than aggressive tariffs.

Understanding the Current Market Dynamics

The Treasury market, which had lost 3.1% in the last quarter of the previous year, is rebounding due in part to recent developments. Investor concerns about rising inflation linked to Trump's potentially aggressive tariff and tax policies had previously led to a cautious approach in the markets. This recovery in the bond market could be indicative of a broader positive trend across various sectors, including stocks and corporate debt.

There is a notable shift in expectations, with overnight-indexed swaps indicating a 69% probability that the Federal Reserve will cut the benchmark rate more than once this year, a significant increase from just 46% earlier. John Hardy, the chief macro strategist at Saxo Bank, described the market's reaction as an encouraging sign, especially as the most feared scenario of immediate and large tariffs did not materialize.

Despite the initial surge in bond prices, analysts are careful not to be overly optimistic. The uncertainty surrounding future tariff policies and the overall direction of the new administration's approach leaves room for caution. Shoki Omori emphasized the importance of continued communication from Trump and other key economic figures, such as his Treasury Secretary nominee Scott Bessent, to provide clearer signals to the markets.

As trading continues, it remains to be seen whether the early gains in Treasuries will hold as more information about Trump's economic policies becomes available.

Treasuries, Trump, Trade