The announcement of a US sovereign wealth fund (SWF) is expected to be bullish for US Treasuries, as such funds typically invest in national bonds to stabilize the economy during crises. However, the immediate reaction in the bond market has been muted due to ongoing tariff discussions. President Donald Trump signed an executive action to establish the SWF, with Treasury Secretary Scott Bessent and Commerce Secretary nominee Howard Lutnick leading the initiative. Bessent emphasized the strategic importance of the fund, which is set to be operational within the next 12 months, highlighting its potential to influence asset allocation strategies across various markets.
The muted response from US Treasuries is largely attributed to investors focusing on hedging core positions amid tariff-related uncertainties. President Trump announced a one-month delay in tariffs following discussions with Mexican President Claudia Sheinbaum, and further talks with Canadian Prime Minister Justin Trudeau are ongoing. This geopolitical backdrop has led to a temporary paring of earlier yield curve flattening, as investors await more clarity on tariff policies.
The TNX, which reflects the yield on 10-year US Treasury notes, is currently at 4.54 as of 15:51 on February 3, slightly down from its last close of 4.57. The yield opened at 4.51, reaching an intraday high of 4.56 and a low of 4.46, as market participants continue to navigate the complex interplay of sovereign fund developments and tariff negotiations.