US 10-year yield: Biggest drop since April 14

U.S. Treasury yields fell sharply yesterday as fresh economic data pointed to a weakening labor market and a slowdown in the services sector, intensifying investor concerns over the health of the U.S. economy. The yield on the 10-year Treasury note dropped by more than 9 basis points to 4.363%, while the 30-year yield declined similarly to 4.887%, according to CNBC. This marked the largest one-day drop for the 10-year yield since April 14.

Source: TradingView

US Treasury yields drop sharply on signs of economic weakness (in stark contrast to April’s surge)

The bond market reacted strongly to disappointing economic data yesterday. 

The ADP National Employment Report revealed that only 37,000 private-sector jobs were created in May—the slowest pace since March 2023 and far below the 110,000 expected by economists surveyed by The Wall Street Journal. This was a steep drop from April's already modest figure of 62,000 jobs, which itself was revised downward from 60,000, showing that “hiring is losing momentum” likely due to the uncertainty surrounding the effects of Trump’s tariffs.

Compounding the concerns, the ISM Services Index—a key gauge of U.S. services sector activity—unexpectedly fell into contraction territory at 49.9, down from 51.6 in April. It was only the fourth time the index has fallen into contraction in the past five years. The report cited weaker new orders, inventories, and backlogs, alongside higher input costs attributed to tariff uncertainty. Although employment within services firms improved slightly, the overall message was one of growing caution and reduced business confidence.

Taken together, these indicators potentially fueled investor expectations that the Federal Reserve may be forced to cut interest rates sooner than previously anticipated, pushing investors to seek the relative safety of government bonds while they offer “higher” interest rates. After the ADP jobs report, President Donald Trump called on Federal Reserve Chair Jerome Powell to lower interest rates via a Truth Social post.

Adding to the sense of growing economic fragility, the OECD this week sharply downgraded its U.S. growth outlook, warning that the country could be among the worst-hit advanced economies over the coming year. 

The organization now expects U.S. GDP growth to slow dramatically to 1.6% in 2025, down from 2.8% in 2024, citing the drag from Trump’s tariff policies, retaliatory trade measures from other nations, and widespread uncertainty around fiscal and monetary policy. That view is broadly in line with Goldman Sachs and the Federal Reserve, which both project 2025 growth of just 1.7%, down from the Fed’s earlier estimate of 2.1%.

In fact, U.S. GDP already contracted slightly—by 0.2%—in the first quarter of 2025, as businesses rushed to import goods ahead of the administration’s tariff deadlines. According to the OECD, tariffs currently in effect have pushed the average U.S. tariff rate to over 15%, compared to just 2.5% before the policy shift. Importantly, the OECD’s forecasts assume that these tariffs will remain in place through at least 2026.

While a U.S. federal trade court recently ruled that Trump may have overstepped his authority in imposing such broad tariffs, a federal appeals court has since paused that decision, leaving legal uncertainty unresolved.

Globally, the OECD now expects the world economy to grow just 2.9% in both 2025 and 2026—lower than its previous forecasts and a slowdown from last year’s 3.3% pace—highlighting how tariff tensions and broader geopolitical risks are weighing on global momentum as well.

Understand how bonds’ yields and prices interact

Bond yields and prices move in opposite directions. When investors flock to bonds, typically during periods of economic uncertainty or deteriorating data—demand drives bond prices up, which in turn lowers their yields. 

When the Federal Reserve signals or actually implements lower interest rates in the US, it creates a favorable environment for existing US bonds—the same goes if market participants’ expectation of lower interest rates rise. Why? Because these are bonds that were issued when interest rates were higher, offer a more interesting fixed interest payment to their holders than the new bonds issued after the cut, as they will offer lower interest payments.

Yesterday’s rally in bond prices could have reflected this dynamic clearly: as fears over slowing growth mounted, investors moved capital into Treasurys, pushing yields down sharply. 

A contrast with April's bond market dynamics

This marked shift stands in stark contrast to what happened in April 2025, when Treasury yields surged due to very different market forces. At that time, the 10-year yield had risen to 4.595%, its highest level since February, while the 30-year yield climbed above 5% for the first time since 2023.

Several factors drove the April rise in yields:

• Resilient economic data had diminished recession fears in the US, reducing demand for the safety offered by government bonds.
• Persistent inflation concerns, particularly linked to new tariff policies from the Trump administration, led investors to demand higher compensation for holding long-term bonds. They also supported the idea that the Fed might have to keep its rates “higher for longer”.
• Weak auction demand for U.S. Treasurys, including a $16 billion 20-year bond sale that cleared at a higher-than-expected yield, signaled reduced investor appetite.
• Growing fiscal worries due to anticipated tax cuts and ballooning deficits contributed to expectations of increased bond supply, which put upward pressure on yields.
• Rising global yields, particularly in Germany and Japan, made U.S. Treasurys less attractive by comparison, prompting further selling.

In April, the narrative was one of economic resilience, inflation risks, and a shift away from bonds in anticipation of higher rates. In June, however, the picture has flipped: disappointing job creation, weakening services activity, and renewed economic uncertainty are pushing investors back into bonds, bringing yields down.

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