The week ahead will provide early clues for two very different risk factors looming for the bond market.
On the one hand, the on-again/off-again risk of tariffs is lurking – a development that could create new economic headwinds that soften growth and, in theory, lower interest rates as investors seek safe havens and the eases its policy stance to provide stimulus.
But tariffs could also lift inflation, perhaps persuading the Fed to keep rates higher for longer if not raise rates. Deciding which aspect of the tariff effect will dominate is tricky for several reasons, including ongoing ambiguity about when or if tariffs will change and uncertainty about the macro price tag associated with raising import costs.
Another complicating factor for the bond market: renewed expectations that the already hefty federal budget deficit will deepen after President Trump last week signed his…
