The announcement of 25% tariffs on Canada and Mexico by President Donald Trump has stirred the financial markets, yet bond traders appear to be calling the inflation bluff. Typically, such a move would lead to a flattening of the yield curve as investors anticipate inflationary pressures from increased import costs. However, the yield curve has not flattened as expected, indicating that bond traders may not foresee a significant inflationary impact from these tariffs. This cautious stance is likely influenced by the example of Colombia, where the mere threat of tariffs prompted immediate action, alleviating inflation concerns.
The bond market's mixed reaction reflects a wait-and-see approach as traders assess the potential responses from Canada and Mexico. Meanwhile, the stock market has reversed earlier gains amid uncertainty over the tariffs' impact on corporate earnings. As of 16:01 on January 30, the 10-year Treasury yield stands at 4.52%, slightly down from its last close of 4.55%, with an intraday high of 4.54.