U.S. Shifts Trade Tactics as Bond Yields Surge, Fed Eyes Rate Cuts

On April 16th, QCP released its daily market observation report, highlighting the strategic maneuvers of the United States in its trade policies with China. The U.S. initially implemented a deterrence tactic through exaggerated tariff numbers, but quickly shifted gears by offering tariff exemptions and inviting China back to the negotiation table. This abrupt change was driven by warning signals from the bond market, where the 10-year U.S. Treasury bond yield surged to 4.6% and the 30-year U.S. Treasury bond yield broke through 5%, disrupting risk sentiment. The bond market sell-off intensified pressure for Federal Reserve intervention, with the Fed indicating readiness to take action to stabilize financial conditions. Governor Waller emphasized this shift, hinting that the Fed's attention is turning to recession risks and subtly downplaying the persistent inflation issue, now describing it as "transitory."

The Fed has previously applied the "transitory" label to various inflation cycles, which have been far from temporary. However, the Fed's defense mechanism is gradually approaching, with the market now expecting 3.5 rate cuts by 2025. Meanwhile, as geopolitical tensions escalate, gold continues to rise. With U.S. Treasuries and the U.S. dollar losing some of their traditional safe-haven appeal, gold has now become the market's preferred store of value. Bitcoin, unlike gold, has not seen a safe-haven demand. The narrative of "alternative store of value" has not gained traction in the current macro environment. Market participants' stance still leans toward defense. They are still focused on hedging downside risks until a clearer picture emerges.