tariff fears fuel treasury yield climb: what's next?

2025-08-08 general

New York, Friday, 8 August 2025.
us treasury yields are on the rise, closing at 4.28% on the 10-year bond. the bond market feels pressure from tariff-induced inflation concerns. analysts are closely watching the july consumer price index (cpi) data. the cpi is expected to give insights into inflation trends. these trends may impact investment strategies, especially in the semiconductor industry. the yen weakened against the dollar. one dollar buys ¥147.70-¥147.80. this currency shift happened because us long-term interest rates increased.

cpi anticipation and market sentiment

The market anticipates the release of the July CPI data on August 12 [1]. Mark Chandler of Bannockburn Global Forex suggests that the CPI data could reveal accelerating inflation. This could lead to higher treasury yields and a stronger dollar [1]. Ahead of the CPI release, investors are reducing their short positions in the dollar against major currencies [1]. Investors are closely watching inflation data, as it directly influences expectations for Federal Reserve policy and, consequently, stock valuations.

tariff impact on inflation: conflicting views

ANZ Bank economists predict that the July core CPI will increase by 0.32% month-over-month, pushing the year-over-year rate from 2.9% to 3.0% [5]. They attribute this rise to the full implementation of reciprocal tariffs set by the Trump administration in early April, which maintains an effective tariff rate of approximately 20% on imported goods [5]. However, Atlanta Federal Reserve President Bostic expresses skepticism about the extent to which tariffs will drive inflation, questioning whether the impact will be a one-time price increase or a more persistent inflationary trend [7]. These conflicting views create uncertainty for investors.

fed policy and interest rate outlook

Despite concerns about tariff-driven inflation, ANZ economists believe the Federal Open Market Committee (FOMC) still has reasons to cut interest rates in September [5]. They cite a weakening labor market and a return of core service inflation to its long-term trend as factors supporting a more accommodative monetary policy [5]. However, the likelihood of a rate cut in September has decreased to 44%, with slightly over 50% probability of two rate cuts throughout the year, indicating investor uncertainty [3]. Disagreement within the fed adds to the complexity; at the last meeting, two members voted against holding rates steady, favoring a 25 basis point cut [3].

potential cpi surge and market consequences

CICC analysts suggest that the U.S. inflation is underestimated due to seasonal adjustment model defects and that tariffs have already caused a partial rebound [8]. They anticipate the CPI to confirm an upward turning point in the coming months, potentially as early as August 12, with a year-over-year increase lasting about a year [8]. JPMorgan Chase’s chief global strategist, David Kelly, warns of severely worsening inflation data between now and the September meeting, driven by an average tariff rate potentially near 20%, which could impact corporate profits or consumer spending [3]. Such a surge may challenge the fed’s ability to justify rate cuts in September [3].

corporate reactions and consumer impact

Some companies are already planning to pass tariff costs onto consumers. Procter & Gamble announced that approximately a quarter of its goods will experience single-digit price increases in the first quarter of fiscal year 2026, partly due to tariffs [3]. Nike has also recently announced plans to raise prices [3]. These corporate actions suggest that inflationary pressures from tariffs are becoming more tangible, potentially impacting consumer spending and overall economic growth. The euro has also weakened against the dollar, trading at €1=1.1640-1.1650, influenced by rising us treasury yields and dollar-covering activities [1].

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inflation treasury yields