Treasury slump seeps into June on renewed tariff concerns

Treasuries extended losses into June, as concerns over President Donald Trump’s tariff policies resurfaced at the start of a data-heavy week for assessing the health of the world’s largest economy.

Benchmark yields were trading four to more than six basis points higher across the curve and yields resumed climbing after a brief pullback in response to weaker-than-expected US ISM manufacturing data for May. The ISM remains in contraction territory below 50. 

Following their first monthly decline of 2025 in May as measured by a Bloomberg index, US Treasuries — particularly longer-dated maturities — continue to face pressure amid persistent concerns over the nation’s fiscal outlook.

Longer-dated bonds led Monday’s declines, driving yields on 10-year debt up more than 6 basis points to 4.46%, while the 30-year bond tested 5%. The spread between five- and 30-year yields climbed to within a whisker of 100 basis points, a level it last closed above in 2021. The moves came as US equities traded mixed and a gauge of the dollar approached its lowest level since 2023. 

“There is a general view that the curve should steepen” ahead of US employment data due Friday that is followed by sales of 10- and 30-year Treasuries next week, said Tom di Galoma, managing director at Mischler Financial Group.

Even with the long-end back near 5% and around former peaks seen in 2007, large bond investors generally remain underweight and favor owning shorter-dated areas of the market around the five-year sector.

“Our strongest conviction has been staying underweight long-term US Treasuries,” BlackRock Investment Institute said in its latest weekly note. Amid persistent deficits and sticky inflation, the asset manager is watching to see whether Congress passes a budget bill that could push the US deficit higher, and “impact foreign investors and drive term premium even higher.”

Euro-area and UK bonds fell alongside Treasuries, with yield curves also steepening as the long-end bore the brunt of the selling.

“We can certainly see why the long end of safe haven curves are unloved,” said Rabobank strategists including Richard McGuire, adding the US policy outlook is too cloudy to attract buyers for long-dated Treasuries.

That reflects the risk of further trade salvos from the US president, after Trump announced he would be increasing tariffs on steel and aluminum to 50% from 25% to help protect American workers. He also said China had violated its trade agreement with the US.  

What Bloomberg strategists say...

“With bond investors on strike and purchasing managers survey’s signaling more inflation, the current bend in the curve can persist Monday.” 

—  Alyce Andres, MLIV Rates Strategist, Chicago

A slate of labor market reports due this week could play a key role in shaping the next moves in Treasury yields and the Federal Reserve’s interest rate path. Traders now anticipate two quarter-point rate cuts in 2025, down from expectations of three earlier in May.

One of the Fed officials speaking on Monday, US Chair Jerome Powell didn’t comment on the outlook for interest rates. Elsewhere, Chicago Fed President Austan Goolsbee said the central bank can proceed with interest-rate cuts if uncertainty around trade policy is resolved. 

Speaking earlier, Dallas Fed President Lorie Logan said the US central bank can remain patient as it assesses risks to both inflation and unemployment.