The imposition of new tariffs by President Trump has introduced significant uncertainty into the financial markets, with potential implications for both equities and bonds. While the tariffs are expected to increase inflation risk, leading to higher short-term interest rates, they also heighten recession fears, which could drive investors toward the relative safety of long-dated Treasuries. This dynamic creates a challenging environment for steepeners, which typically benefit from a widening spread between short and long-term rates. The tariffs' potential to contract GDP by up to 2% if extended to the EU underscores the recessionary risks, making long-dated Treasuries more attractive due to their safety and potential for capital gains.
The iShares 20+ Year Treasury Bond ETF (TLT), which focuses on long-dated U.S. Treasuries, is seeing increased interest as investors weigh the recessionary implications of the tariffs. The ETF provides exposure to long-term government bonds, which are often sought after during periods of economic uncertainty. As of 12:32 on February 3, TLT is trading at $88.26, reflecting a modest increase from its last close of $87.45, amid heightened demand for safe-haven assets.