Treasurys soar and equities plummet as markets rush to safe assets. President Trump’s reciprocal tariff announcements have rattled markets and amplified recession fears. Yesterday, yields immediately dropped 10 bps from intraday highs into the close, continuing to fall overnight and throughout today’s session. Yields ended the day 18 bps lower at the short end of the curve, pushing the policy sensitive 2-year yield to 3.68%, a 60 bp decline from YTD highs. Fed Funds futures now imply a higher chance of four rate cuts in 2025 vs. three, with the first cut still expected in June. Meanwhile, the NASDAQ and S&P 500 were down 5.97% and 4.84% today, respectively, their largest 1-day declines since 2020.
Oil plummets on tariffs, OPEC+ production hikes. Brent and WTI crude oil prices dropped well over 6% today, now at $70.14 and $66.95 per barrel, respectively. The move was initially driven by U.S. reciprocal tariff announcements, which spurred fears that potential global economic slowdowns will dampen oil demand. The price declines extended after eight OPEC+ nations unexpectedly agreed to increase oil output by 411k barrels per day next month, which OPEC said is “equivalent to three monthly increments.” OPEC was widely expected to increase production by just ~140k barrels per day, and the move is part of a broader effort to unwind voluntary production cuts.
President Trump offers room for negotiation on tariffs. Amidst markets and trading partners digesting yesterday’s tariff announcement, President Trump defended the benefits of the trade measures while also reiterating his willingness to negotiate. He said that tariffs give the U.S. negotiating power but added that he would consider rollbacks if countries offered something “phenomenal” in return. He also said that if Beijing approves the sale of U.S. TikTok operations, he will offer tariff relief to China. Still, U.S. friends and foes alike are preparing their own countermeasures. China’s Ministry of Commerce, the EU and France have all publicly announced retaliatory measures, and Japan’s Prime Minister called the tariffs “very disappointing.”