Rates Little Changed to End First Week of President Trump’s Return 

Yields fall to end a relatively quiet week for rates. U.S. Treasury yields fell ~2-3 bps across the curve today to end roughly unchanged from last week. The 2-year yield fell to ~4.27% vs. ~4.28% last Friday, while the 10-year yield ended ~1bp lower than last Friday at ~4.62%. The relative calm in Treasury markets this week was driven in part by more temperate rhetoric on tariffs by President Trump, contrary to expectations that sweeping levies would be enacted on major trading partners during the President’s initial days. Equities benefitted from that temperance along with the President’s calls for lower rates, oil prices, taxes and more AI investment this week; despite major indices falling today on a chipmaker rout, the S&P 500 ended the week 1.7% higher, the best start to a presidential term since 1985.

Consumer sentiment falls. University of Michigan consumer sentiment data released today showed that consumers became less optimistic in January. The final overall sentiment index result was 71.1, below expectations of no change from the 73.2 initial estimate, and falling from December’s 74.0 result. Today’s print marks the first decline since last July and was driven by concerns about higher inflation due to tariffs, and unemployment. 47% of consumers who participated in the survey expect the unemployment rate to rise in 2025, the highest since the pandemic, and 1-year ahead inflation expectations rose from 2.8% in December to 3.3%, the highest level since last May.

Bank of Japan hikes rates. Today, the Bank of Japan (BoJ) announced a 25bp rate hike, bringing their key policy rate to 0.5%, its highest level since 2008. The move follows conflicting signals about the path forward sent by various officials at the start of the hiking cycle, the patient wait for supportive labor and inflation data, and the initial impact of President Trump’s return to the White House which the BoJ indicated was a key consideration driving future policy decisions. Looking ahead, BoJ Governor Ueda reiterated that future decisions would depend on the state of the economy and price growth, leaving the door open for further hikes without committing to a specific timeline.