US Treasury Yields Are Falling: What This Means for the Economy

Tariff-driven recession talk is sending U.S. Treasury yields to their lowest levels since December.

The New York Stock Exchange (NYSE) stands on Wall Street on March 5, 2025. Spencer Platt/Getty Images

Wall Street and the Trump administration are not waiting for the Federal Reserve to restart its monetary policy easing cycle to lower interest rates.

U.S. Treasury yields have been sinking since hitting a peak in the middle of January. The benchmark 10-year yield has erased nearly 60 basis points, falling to a four-month low of 4.23 percent.

Current economic conditions would usually send yields higher, comparably to what transpired shortly after the Federal Reserve followed through on a half-point interest rate cut in September. Inflation expectations remain high, the Fed has signaled a higher-for-longer interest rate environment, and the federal government continues to run massive deficits.

So, what has fueled the sharp drop in government bond yields? Recession talk, says Kathy Jones, a chief fixed income strategist at Charles Schwab.

“It looks like the bond market has decided to bypass short-term inflation concerns and focus on the long-term prospects,” Jones said in a March 5 research note. “So far, the economic data aren’t pointing to recession, but there are warning signs of a growth slowdown.”

R-word Hits the Street

The Atlanta Fed’s GDPNow Model estimate signals a 2.4 percent contraction in the first quarter after forecasting an expansion for weeks.

According to betting website Polymarket, the odds of a U.S. recession this year rose to 42 percent, up from 20 percent at the start of 2025.

The Federal Reserve’s preferred recession indicator is flashing red. The 10-year yield fell below the 3-month note, resulting in an inverted yield curve. This means that investors possess a bleak long-term economic outlook and are moving their money into safe long-term bonds.

In an interview with Fox News’ “Sunday Morning Futures,” President Donald Trump declined to rule out a downturn, adding fuel to the recession fire on Wall Street and sending traders into government bonds.

“It’s crucial to note that market sentiment is now influenced less by the central bank policies and the level of yields, and more by growth expectations,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said in an emailed note to The Epoch Times. “As such, the US yields continue to fall not on dovish Fed expectations but on waning growth expectations.”

Despite the U.S. stock market wiping out $1.5 trillion in value during the March 10 trading session, many economic observers have shrugged off recession concerns.

“It’s hard to have a recession in the U.S. when the unemployment rate is around 4% and jobless claims are in the low 200k,” Tom Essaye, the founder and president of Sevens Research Report, said in a note emailed to The Epoch Times. “Yes, we could see a loss of positive economic momentum, but these jobs numbers will have to deteriorate substantially from here to imply a recession.”

In February, the U.S. economy added 151,000 new jobs, and the unemployment rate ticked up to 4.1 percent.

Investors usually seek shelter from market turmoil in safe-haven assets such as Treasury bonds. With intensifying concerns that the U.S. economy will endure back-to-back quarters of negative GDP growth fueled by tariffs, traders are doing just that, purchasing U.S. government bonds and sending yields lower. This could help the current administration’s broader objective of lowering interest rates.

Last week, appearing at the Economic Club of New York, Treasury Secretary Scott Bessent noted that the White House would not wait for the Federal Reserve to restart its rate-cutting campaign.

Scott Bessent, President-elect Donald Trump's nominee for Treasury secretary, testifies before the Senate Committee on Finance at the Capitol on Jan. 16, 2025. Madalina Vasiliu/The Epoch Times

“You will notice that he [Trump] has stopped calling for the Fed to cut rates,” Bessent said. “We want to focus on the 10-year, and what can we do as an administration to bring that down.”

Considering what has occurred in the Treasury market, the Trump administration could be succeeding on this front.

While economists debate whether the United States will slip into a downturn, face stagflation—a mix of anemic growth, elevated inflation, and rising unemployment—or keep growth prospects intact, businesses and consumers could start feeling relief from three years of high interest rates.

Borrowing Is Cheaper

When the Fed launched its quantitative tightening initiative in March 2022—a blend of raising interest rates and scaling back the balance sheet—borrowing costs began soaring.

A cocktail of lower interest rates and falling Treasury yields is making borrowing slightly easier to swallow today. This is most pronounced in the mortgage market.

Mortgage rates, which track the benchmark 10-year Treasury yield, have been gradually easing.

According to Freddie Mac, the fixed 30-year mortgage rate has fallen for seven consecutive weeks, declining 40 basis points over the past two months to 6.63 percent, the lowest level since December.

“As the spring homebuying season gets underway, the 30-year fixed-rate mortgage saw the largest weekly decline since mid-September,” Sam Khater, the chief economist at Freddie Mac, said in a statement. “The decline in rates increases prospective homebuyers’ purchasing power and should provide a strong incentive to make a move.”

On March 5, the Mortgage Bankers Association reported that mortgage applications surged more than 20 percent, and refinancing activity was at its best since early October.

Mortgage rates could maintain this downward trajectory if U.S. Treasury yields keep tumbling and the Fed restarts its rate-cutting cycle. According to the CME FedWatch Tool, the futures market is betting that the Fed’s next policy action will happen in June or July.

Beyond the real estate market, tumbling yields can influence other corners of capital markets, including car loans.

The auto loan market, for example, has observed improved access to credit, says Cox Automotive. The industry follows the five-year Treasury yield, which has fallen below 4 percent.

The average auto loan rate decreased 36 basis points from January, and approval rates rose 10 basis points last month.

“This slight increase indicates that more consumers could secure auto loans, reflecting a marginally more favorable lending environment,” Cox Automotive stated in a report. “For consumers, the improved access to auto credit is a positive development, particularly for those with lower credit scores.”

Even credit card interest rates, which are influenced mainly by the Fed’s benchmark federal funds rate, have been incrementally coming down. LendingTree data show that the average annual percentage rate for all credit cards has decreased for six straight months, sliding to 21.47 percent from 21.76 percent in the third quarter.

On Main Street, a significant hurdle for small businesses has been accessing affordable capital.

According to a Goldman Sachs study, 53 percent of small businesses cannot afford to take out a loan amid high interest rates. Eighty-eight percent noted that falling rates would help their operations.