In an environment disrupted by equivalent tariffs globally, the volatility of US Treasury bonds has significantly increased. Initially, there was a surge in hedging purchases during stock market declines, but recently, there has been a noticeable sell-off. This begs the question: what is happening? What should we observe moving forward?

The primary factors affecting bond prices typically fall into three categories: market sentiment, changes in benchmark interest rates, and inflation expectations. Market sentiment and changes in benchmark rates usually have a quicker impact on bond prices, whereas inflation expectations tend to react later but have a more sustained effect. For those looking to trade bond-related products for short-term profits, the focus can be placed on any significant changes in financial market hedging demand or interest rate discussions.

Starting from late March, reactions to equivalent tariffs leading to stock market declines have generated hedging demands. Recent US economic data has worsened, fueling investor expectations of a potential early rate cut by the Federal Reserve. The GDPNOW model from the Federal Reserve Bank of Atlanta projects a negative annual GDP growth rate of 2.8% for the first quarter.

As the tariff measures officially come into effect, US inflation pressures may rise swiftly in the second quarter, beginning to affect longer-term bonds. We can observe from the data that the yield on the benchmark 10-year Treasury bond dropped from nearly 4.4% to 3.84%, reflecting the market's reaction to the impact of tariffs. However, after the tariffs were implemented, foreign sell-offs of US bonds or rising inflation pressures resulted in yields soaring to 4.499%. For investors holding substantial bond products, if inflation concerns persist, they may consider using CME's 10-year yield futures as a short-term hedging tool.

Additionally, investors can utilize CME's FedWatch tool to analyze potential interest rate changes, assisting in the assessment of the bond market's direction. For instance, as depicted, there is a 58% chance that rates will remain unchanged in the May meeting, with a 44% chance of a rate cut. If subsequent cuts or probabilities continue to rise, it may further suppress the yields of 10-year Treasury bonds.