Capital Economics: U.S. Treasury Yields Near Bottom, Unlikely to Fall Much Further

Key TakeawaysCapital Economics says U.S. Treasury yields are approaching their short-term floor.Recent declines were driven by renewed U.S.–China trade tensions and expectations of continued Fed rate cuts.Analysts believe yields are unlikely to fall much further unless a full-scale trade war resumes.Jonas Goltman, Deputy Chief Market Economist at Capital Economics, said that U.S. Treasury yields may be close to bottoming out after their recent decline.Goltman explained that the drop in yields was largely triggered by renewed concerns over U.S.–China trade relations, but he cautioned that further downside appears limited:“Unless the trade war actually breaks out again, we do not believe that U.S. Treasury yields will fall significantly further in the short term,” he said.Fed Policy Shift and Market SentimentGoltman added that the main reason for the relatively low yield environment lies in the Federal Reserve’s shifting policy stance toward lower interest rates.“While market fears of a U.S. recession have eased, the Fed’s outlook has clearly moved toward continued easing in recent months,” he noted.Federal Reserve Chair Jerome Powell reaffirmed this position in his speech on Tuesday, emphasizing that the central bank remains committed to further rate cuts to support growth amid persistent global uncertainty.