The drop in Treasury yields and Trump’s Tariff Plans

The Key Take-Aways

• After President-elect Donald Trump revealed late on Friday that he selected a Wall Street friend for the Treasury secretary post, yields fell sharply Monday.
• The drop could reflect investors' optimism that Scott Bessent, a hedge fund manager, would use his influence as Trump's top financial advisor to raise tariffs less aggressively than Trump has previously suggested.
• Trump pledged to increase tariffs during the campaign for his presidential nomination to a level that mainstream economists warned would lead to inflation.

The yields of 10-year Treasury bonds fell to the lowest level in almost a month on Monday. This suggests that investors are less concerned about inflation and tariffs after Donald Trump made his recent cabinet appointments.

The yields fell Monday. They dropped to 4.27% in the late afternoon, down from 4.41% by the close of Friday’s trading. This is the lowest level since October 29. After Trump won the presidency, the 10-year bond has surged up to its highest levels in July.

Treasury yields are heavily influenced by investor concerns over inflation, and some economists suggest that the drop may be due to traders’ optimism about Trump’s choice of Scott Bessent as Treasury Secretary. This could help temper the President-elect’s tariff plans.

Economists widely believe Trump’s campaign-trail proposals of high tariffs on foreign products—including a 60% tariff on Chinese goods and a tariff as high as 20% on goods from every other country—would push up prices for consumer products and stoke inflation.

Bessent voiced his support for Trump’s proposed tariffs, and also suggested that tariffs might be used in negotiations without actually being implemented.

“We do not believe he is a trade hardliner,” Matthew Luzzetti and other economists from Deutsche Bank wrote an article for their clients. “Bessent’s presence should, therefore, act as a counterbalance to Trump’s most extreme impulses on tariffs, as well as other voices supporting these policies.”

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