(Bloomberg) -- Treasuries jumped as investors dashed into havens after President Donald Trump's vow to press ahead with his trade war injected fresh uncertainty into global markets.
The rally, which drove the rate on the benchmark 10-year note down six basis points to 4.03%, gathered steam as stocks slid and worries mounted about potential US military strikes on Iran.
"The heightened uncertainty about trade over the last few days is responsible for the risk off move in equities and safe-haven move in Treasuries," said Priya Misra, a portfolio manager at JPMorgan Chase & Co. "With uncertainty, investors should be derisking and bidding up Treasuries."
Traders are weighing the implications of Trump's new 15% across-the-board tariffs following the Supreme Court decision invalidating the broader levies that he rolled out in April and prompted months of global negotiations. The risks posed to businesses by new trade disruptions at least temporarily overshadowed angst in the Treasury market that the government could need to issue more debt to make up for the lost revenue or refund some of the $170 billion collected under the now-defunct tariffs.
"One of the key reasons rates markets were worried is because of lost tariff collections and refunds," said Gennadiy Goldberg, head of US rates strategy at TD Securities. "But with refunds likely to take significant time and now even more collections, the combination is likely easing some of the market's worries."
Plenty of questions remain over the negotiations with Iran as well as the new tariff policy and its effect on global trade, US consumption and the pace of economic growth.
Investors will be watching Trump's State of the Union address Tuesday amid rising geopolitical tensions, which have also contributed to the haven bid in Treasuries.
"To me it is geopolitics, uncertainty around Iran and not knowing what to expect heading into the state of the union address," said Subadra Rajappa, head of US research at Societe Generale. "The data has been relatively strong, but uncertainty is rising on many fronts."
What Bloomberg Strategists say...
"Bonds will need a fresh catalyst for 10-year yields to break out below 4%. A focus on duration demand factors likely won't be enough, though it will keep yields probing recent lows this week."
—Alyce Andres, Macro Strategist, Markets Live
On Monday, Federal Reserve Governor Christopher Waller said the Supreme Court decision is unlikely to have a significant impact on his views on monetary policy.
Underlying inflation — without the effects of tariffs — is close to the target of 2%, he said, and his decision to support an interest-rate cut at the Fed's March meeting will hinge on labor market data.
Consumer prices rose at an annualized rate of 2.4% in January, according to data released this month.
Traders have all but ruled out a reduction at next month's Fed meeting with interest-rate swaps showing the next quarter-point cut not coming until the second half of the year. Policymakers kept rates on hold at a range of 3.5% to 3.75% at their January meeting.
Apollo Global Management Chief Economist Torsten Slok said the Supreme Court ruling, followed by Trump's announcement of new tariffs, sent his forecast on a roller coaster over the weekend. He concluded that while the economy is likely to remain on sound footing, the tariffs will continue to exert pressure on inflation.
"It is indeed the case now that there is more uncertainty," he said on Bloomberg Television. "This is a tug of war between more issuance potentially putting upward pressure on rates and, on the other hand, uncertainty with still elevated levels of tariffs pulling in the opposite direction — namely slower growth and therefore weaker demand."
--With assistance from Ye Xie.
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