10-Year Yield Tops 4.55% Despite Trump's EU Tariff Delay As Bond Market Signals Fiscal Concerns

The 10-year Treasury yield climbed above 4.55% on Monday as bond markets remained under pressure despite President Donald Trump‘s decision to delay 50% European Union tariffs until July 9.

What Happened: Trump announced Sunday on Truth Social that European Commission President Ursula von der Leyen requested the extension during a phone call. The original June 1 deadline was pushed back after von der Leyen assured “swift negotiations” would commence. “It was my privilege to do so,” Trump stated.

The tariff delay provided temporary relief for U.S. stock futures, with Dow Jones Industrial Average futures gaining 325 points and S&P 500 futures advancing 53 points in early Asia trading. However, bond markets continued reflecting deeper structural concerns about U.S. fiscal health.

The 10-year yield’s persistence at elevated levels signals a fundamental shift in financial markets, according to a Wall Street Journal analysis by Greg Ip. The era of abundant savings pursuing scarce bonds has ended, leading to higher borrowing costs globally.

U.S. deficits represent the primary driver behind bond market turmoil. Annual deficits are projected to exceed $2 trillion, potentially reaching $3 trillion. The federal deficit surpassed 6% of Gross Domestic Product last year and is expected to remain above 7% for a decade under the House Republican budget plan.

Why It Matters: Moody’s Ratings stripped the U.S. of its final AAA credit rating last week, highlighting mounting fiscal challenges. The rating agency projects Trump’s tax cut extensions could push the federal deficit from 6.4% to nearly 9% by 2035.

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The term premium on 10-year bonds has surged from negative territory since October 2024, indicating investors demand higher returns for holding longer-duration debt.

Treasury Secretary Scott Bessent defended the administration’s approach, stating, “We can both grow the economy and control the debt” by ensuring growth outpaces debt accumulation. ARK Invest’s Cathie Wood endorsed Trump’s policies as “Reaganomics on steroids.”

Markets faced broad selloffs Friday amid trade war concerns before the tariff extension announcement. The SPDR S&P 500 ETF SPY dropped 0.67% on Friday, while the Invesco QQQ Trust QQQ fell 1%.

The tariff extension provides temporary market relief but maintains underlying volatility as structural fiscal challenges persist.

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