US Treasuries Rally On First Trading Day Under Donald Trump Presidency

On the first trading day following Donald Trump’s inauguration as president, US Treasuries saw a notable increase. This rise in Treasury prices indicates a sense of relief among investors who anticipated a range of aggressive trade policies from the new administration.

The Market Response

During the initial trading hours in Asia, the yield on the ten-year US Treasury fell by as much as nine basis points. This decline in yield suggests cautious optimism in the markets, primarily due to the expectation that Trump may pursue a more measured stance on trade relationships. Investors are particularly relieved by the absence of new tariffs on the United States' three largest trading partners.

Investor Sentiment

Several market analysts noted that the lack of immediate tariff announcements has sparked a relief rally in Treasuries. Shoki Omori, the chief global desk strategist at Mizuho Securities, commented that the market was initially focused on the possibility of significant tariffs being introduced right away. The absence of such sweeping measures, especially concerning China, has shifted investor sentiment positively.

After experiencing a challenging last quarter of 2024, where Treasuries dropped by 3.1%, the market was eager for clarity on Trump’s economic policies. Concerns about heightened inflation stemming from potential tax cuts and tariffs had previously created uncertainty among investors. As a result, US debt has remained stable as the market awaited the new president's policy direction.

Future Expectations

Currently, financial instruments known as overnight-indexed swaps are indicating a 69% probability that the Federal Reserve will reduce the benchmark interest rate more than once this year, a notable increase from the 46% probability observed just days prior.

John Hardy, the chief macro strategist at Saxo Bank, highlighted that the market interpreted Trump’s initial speech as favorable since the most feared scenario of immediate and extensive tariffs did not come to fruition. However, many analysts maintain a cautious outlook, expressing uncertainty about the sustainability of the recent gains in Treasuries. Investors remain on edge, looking for more definitive messaging from Trump and fiscal direction from his nominee for Treasury Secretary, Scott Bessent.

As the Asian stock market opened higher amidst the easing of tariff threats, the overall market mood is becoming more optimistic. This first trading session after Trump’s inauguration illustrates how initial reactions to policy announcements can significantly influence investor behavior in the bond market and beyond.

Treasuries, Trump, yields