Rates Spark: The Tarriff On/Off Switch

2025-02-04 03:20:00 ET

Summary

• Deals on no US tariffs for Mexico and Canada helped mark Monday as a positive step away from the brink, at least for another month.
• So far the market is confirming that deals done to help avoid tariffs are good for risk exposure and growth, which is resulting in downward pressure on the USD and upward pressure on Treasury yields. The reverse obtains when tariff threats are deemed a real and present danger.
• We see euro rates continuing to be sensitive to growth risks, and especially the front end may find itself even lower in the near term.

By Padhraic Garvey, CFA and Michiel Tukker

Tariff story trumping payrolls as a driver so far this week

Market rates continue to get pushed and pulled by the Trump tariff on/off switch. The peso is now back to where it was post the off switch on Mexico. Treasuries in the big scheme of things have not had huge reactions to the news flow. It’s more been a story of a pull pressure from lower eurozone rates. And now that’s unwound a tad. Hard to get a clear steer here of what’s driving what. But there is still a short-term feeling that this still does not end well, even as the latest news on Mexico is certainly glass half-full (no tariffs for now). And the same for Canada. Both have managed to extend the tariff drama for another month....

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