Tariffs Drive 30-Year U.S. Treasury Yield Above 5% Amid Inflation Surge

In the latest economic developments, the impact of tariffs on inflation has become evident, with the 30-year U.S. Treasury yield breaking through the 5% mark. This shift is a direct result of the tariffs imposed by the U.S. government on imports from major trading partners, which have contributed to a rise in consumer prices.

The latest data from the U.S. Bureau of Labor Statistics shows that the Consumer Price Index (CPI) for June increased by 2.7% year-over-year, surpassing market expectations and marking the largest year-over-year increase since February. Excluding volatile food and energy prices, the core CPI rose by 2.9% year-over-year, slightly below expectations but higher than the 2.8% increase in May.

Despite the inflation report, the U.S. President expressed that the inflation rate was low and advocated for a 3% interest rate cut by the Federal Reserve, claiming it could save 100 million dollars annually. This intervention sparked criticism, with warnings that the independence of the Federal Reserve is crucial and that interfering with its policies could backfire.

Market sentiment has aligned more with the Federal Reserve's cautious stance, leading to a cooling of expectations for a rate cut. Following the CPI report, the probability of the Federal Reserve maintaining interest rates at the July meeting rose to 97%, while the likelihood of a rate cut in September decreased to around 50%.

The tariffs imposed by the U.S. government on imports from major trading partners have been identified as the primary driver of the recent price increases. While the overall inflation rate remains within expected ranges, specific sectors such as clothing, footwear, and furniture have shown price increases, indicating that tariff-related cost pressures are beginning to affect consumers.

Looking ahead, several factors could influence U.S. inflation. The tariff impact on core goods CPI is expected to continue, supported by rising prices in sectors like electronics and toys. However, other factors such as declining oil prices and stable housing costs may mitigate inflationary pressures. The implementation of additional tariffs could exacerbate inflation in the second half of the year.

Economists have noted that while the immediate impact of tariffs on inflation has been moderate, the full effect may take time to materialize, especially as new tariffs come into effect. The Federal Reserve is likely to maintain a wait-and-see approach in the coming months, closely monitoring economic data before making any policy changes.

In response to the inflation data and the potential for further tariff implementation, investors have reduced their expectations for a rate cut by the Federal Reserve in September. This has led to a sell-off in U.S. Treasuries, with the 30-year yield breaking through 5% and the 10-year yield approaching 4.5%. Some traders have even placed bets on the 30-year yield rising to around 5.3% within the next five weeks.

Long-term concerns about high government debt and excessive fiscal spending have also contributed to the sell-off in Treasuries. Analysts predict that the U.S. budget deficit could increase by 2238 billion dollars next year, with the deficit rate rising to around 7%. While the "Big and Beautiful" bill is not expected to trigger a debt crisis, it could lead to higher term premiums.

Overall, while the supply of U.S. Treasuries and the risk of rising interest rates may be manageable in the second half of the year, there are still concerns about potential "stock, bond, and currency" risks if inflation exceeds expectations. The market is also bracing for potential structural changes, as the simultaneous sell-off in U.S. stocks, bonds, and the dollar could reshape investment strategies and open new opportunities for diversified portfolios.