Donald Trump and Scott Bessent wanted to get 10-year US Treasury yields down, and they did. There’s just one problem.

As the curtain closed on Q1, benchmark US borrowing costs were 35bps lower on the year, which sounds good until you take a step back and consider what, exactly, the bond market’s trying to say about the policy mix.

The figure below shows the YTD trade in the 10-year, decomposed.

As you can see, the rally’s attributable entirely (and then some) to reals, which were down 39bps on the year headed into Q2. Meanwhile, breakevens are actually higher for 2025, albeit not by much.

Hopefully, you can write the bond market’s narrative, which is to say you can hear what it’s trying to tell you. “In short, Q1’s decline in nominal rates was a real yields story as opposed to being driven by a compression in breakevens,” BMO’s Ian Lyngen and Vail Hartman remarked on Tuesday. “The combination of lower reals and wider breakevens shows the market has been trading higher tariffs as 1) an inflationary impulse and 2) a significant headwind to real GDP growth.”

That’s not what you want, nor was it especially encouraging to see the curve bull flatten during Q2’s first session as growth worries proliferated in the wake of a concerning ISM manufacturing release.

“The long-end is seeing renewed demand for duration on risk-off ‘growth downside,’ challenging still-crowded longs in steepeners,” Nomura’s Charlie McElligott said. “But the true eye opener continues to be front-end reals moving to new multi-year lows, in a clear nod to stagflation.”