The imposition of new tariffs by President Trump has introduced significant uncertainty into the financial markets, with potential repercussions for both equities and bonds. The tariffs, targeting imports from Mexico and Canada, are expected to increase inflation risk, leading to higher short-term interest rates. This scenario poses challenges for steepeners, which typically benefit from a widening spread between short and long-term rates. As inflation expectations rise, short-term rates are likely to increase, while recession fears could drive long-term rates lower, making long-dated Treasuries more attractive due to their safety and potential for capital gains.
The TMF ETF, which seeks to deliver three times the daily performance of the ICE U.S. Treasury 20+ Year Bond Index, is positioned to benefit from the increased demand for long-dated Treasuries amid recession concerns. The market's focus is now on whether Trump will negotiate deals to lift the tariffs, as any prolonged economic pain could lead to a sharper selloff in equities, further enhancing the appeal of long-term bonds.
As of 12:32 on February 3, TMF is trading at $41.10, reflecting the market's response to the heightened demand for long-dated Treasuries in light of the new tariffs and their potential economic impact.