Treasury yields jumped on Tuesday to begin September trading as a court decision knocking down most of the Trump administration’s tariffs raised the prospect of the government having to repay the money already brought in, stretching an already-stressed U.S. fiscal situation.
The benchmark 10-year Treasury yield rose 5 basis points to 4.281%. The 30-year bond yield climbed more than 5 basis points to 4.977%. The 2-year Treasury yield moved 3 basis points higher to 3.658%. One basis point is equal to 0.01%, and yields and prices move in opposite directions.
At their highs of the session, the 30-year yield topped 4.97%, its highest since late July. The 10-year hit a high of 4.279%, its highest since Aug. 27. The jump in yields was hitting the stock market with the Dow Jones Industrial Average down more than 500 points.
Rates overseas were also jumping with 30-year yields in Germany hitting their highest since 2011. French long-bond yields hit their highest since 2009.
U.S. President Donald Trump’s tariffs are in focus after a federal appeals court on Friday ruled that most of his global tariffs are illegal. The court determined in a 7-4 ruling that only Congress has the power to implement sweeping levies. Trump responded that the decision was “highly partisan” and that he will be appealing the ruling to the U.S. Supreme Court.
“The core Congressional power to impose taxes such as tariffs is vested exclusively in the legislative branch by the Constitution,” the court said. The duties remain in place for now, however.
While Trump’s tariffs had initially raised worries about inflation, driving yields higher, the market view changed over the summer with bond investors heartened by the revenue raised from the duties. Tariffs are set to bring in $172.1 billion in 2025, according to the Tax Foundation, which would be a nice financial boost to a country with a ballooning budget deficit.
“If this ruling is upheld, refunds of existing tariffs are on the table which could cause a surge in Treasury issuance and yields,” wrote Ed Mills of Raymond James in a note.
U.S. 30-year Treasury yield, YTD
U.S. yields seemed to be following overseas rates higher, which were increasing for different reasons.
“A new wave of sovereign risk is washing over European economies, with the UK and France most vulnerable as they navigate fiscal fragility, political instability, and cratering bond market confidence,” wrote Ed Yardeni, president and chief investment strategist with Yardeni Research, in a note.
On the tariff ruling, Yardeni wrote, “The Bond Vigilantes might start acting up again if they can no longer look forward to a significant reduction in the federal deficit attributable to tariff revenues.”
Investors will also be anticipating some key economic data this week, namely the nonfarm payrolls report and unemployment rate for August, set to be released Friday morning. It will influence the Federal Reserve’s interest rate decision later this month.
ISM’s reading of manufacturing strength Tuesday showed contraction, but was a bit better than expected.