The deadline for tariffs is approaching, U.S. stocks are "unfazed," but U.S. Treasury bonds have risen for four consecutive days

When the stock market remains calm in the face of tariff threats, bond investors have begun to prepare for the worst. As the August 1 tariff deadline approaches, risk aversion in the U.S. Treasury market has gradually increased, resulting in four consecutive days of gains. On Monday, U.S. Treasury yields fell across the board, with the benchmark 10-year Treasury yield declining about 5 basis points to 4.37%, marking the lowest level in over a week, and rising for the fourth consecutive trading day. The gains in long-term bonds were also significant, with the 30-year Treasury yield dropping 5 basis points to 4.94%. U.S. and EU officials continued trade negotiations this week, but so far there has been a lack of breakthrough progress, increasing the risk that a 30% tariff could take effect next month. According to CCTV News, President Trump previously announced that a 30% tariff would be imposed on goods imported from the EU starting August 1. Concerns over tariffs are driving funds from the stock market to safer U.S. Treasury assets. Kathleen Brooks, research director at XTB Ltd., stated that worries about tariff risks and the August 1 deadline are exacerbating the market's risk-averse tone. She noted that this is leading to "a slight reallocation of funds from the stock market to safer assets like U.S. Treasuries." In addition to trade tensions, expectations regarding U.S. domestic policy are also influencing the market. Traders are betting on the so-called "Powell hedge" strategy to guard against the risk of Trump potentially firing Federal Reserve Chairman Jerome Powell, a strategy that supports short-term Treasuries. Market views suggest that Powell's successor would support Trump's interest rate cuts, thereby lowering short-term yields. As a result, the yield on the two-year Treasury fell 2 basis points to 3.85% on Monday. Powell is scheduled to deliver opening remarks at the Federal Reserve meeting on Tuesday, but he is not expected to comment on the interest rate outlook before next week's policy decision. The swap market indicates that the likelihood of a rate cut next week is almost zero, with expectations for a total of 46 basis points of cuts for the year remaining roughly unchanged from last Friday. Despite the strong risk-averse buying in the current bond market, not all market participants believe that Treasury yields will continue to decline. Evelyne Gomez-Liechti, multi-asset strategist at Mizuho International, pointed out that some investors may be taking profits on steepening curve trades. Some signals also suggest that long-term yields may face upward pressure. Bloomberg strategist Edward Harrison wrote in a report: "Even before the final tariff measures are implemented, two-year inflation swap rates have already reached their highest level since the Fed's rate hikes began in early 2023. This indicates that, despite the volatility in Treasuries on Monday, long-term yields will still face upward pressure ”