US Treasury yields have risen 52 basis points (0.52%) since April 4, with expected higher inflation accounting for 15 basis points and a real return increase of 37 basis points. However, the trend in yields is logical given declining recession odds.
Global government bond yields have increased more than many developed countries since April 4, but US yields are slightly lower than most peers. The recent weakness in the US dollar is also not conclusive evidence for fiscal policy problems.
Countries with a high per capita GDP and control of the global reserve currency can handle significant debt levels. Germany’s underreported government debt suggests it may be facing similar challenges to its EU neighbors.
The S&P 500 has rebounded from its 19% decline, but the Magnificent 7 group remains 12% below its mid-December summit due to tariff concerns. The betting odds of recession have declined, and only two expected rate cuts for 2025 are anticipated at the mid-June Federal Reserve meeting.
This week, markets will focus on the fallout from tariffs, US policy changes, and potential retaliation or concessions from other countries. Friday’s April inflation reading is expected to be favorable, with the Core PCE Price Index moderating to 2.5% year-over-year.
The rise in US Treasury yields does not indicate a specific fiscal problem but rather reflects lower recession odds and changing global appetite for government bonds. While the current fiscal trajectory is unsustainable, the recent tax bill’s impact on the US economy remains uncertain until Senate changes are made.
Source: https://www.forbes.com/sites/bill_stone/2025/05/25/bond-yields–stocks-somethings-happening-here