Financial Securities Conclude Volatile Trading Session Remaining Relatively Stable
U.S. Markets and Economy: Mixed Signals Amid Trade Tensions
The U.S. financial markets experienced a day of mixed signals on Tuesday, with the 10-year Treasury yield edging down, and the ISM services PMI indicating a modest slowdown in service sector growth.
The ISM services PMI, a key indicator of economic health, edged down to 50.1 in July from 50.8 in June. Although a reading above 50 still indicates growth, economists had expected the index to rise to 51.5. This slight decrease may have increased expectations that economic growth could moderate without accelerating inflation, reducing inflation risk premium embedded in yields.
The 10-year Treasury yield, which was around 4.43% on July 11, 2025[1][3], edged down despite the slowdown in U.S. service sector growth. This could be due to investors interpreting the slowdown as a sign of easing inflationary pressure or a potential moderation in Federal Reserve rate hikes, leading to increased demand for Treasuries and thus lower yields.
Treasuries showed a lack of direction over the course of the trading day, with bond prices bouncing back and forth across the unchanged line before closing roughly flat. This lack of direction may be attributed to bond traders showing a disregard for ongoing trade concerns following President Donald Trump's latest comments on tariffs.
In other news, President Trump announced plans for new tariffs on semiconductors and chips, to be implemented as soon as next week. Additionally, Trump stated that planned tariffs on pharmaceuticals imported into the U.S. could reach as high as 250 percent[2].
The U.S. trade deficit narrowed by slightly more than anticipated in the month of June, shrinking to $60.2 billion from a revised $71.7 billion in May. Economists had expected the trade deficit to fall to $61.6 billion from the $71.5 billion originally reported for the previous month[4].
Amid a lack of major U.S. economic data, trading on Wednesday may be impacted by the results of the Treasury Department's auction of $42 billion worth of ten-year notes[5]. The slight decrease on the day pulled the ten-year yield down to its lowest closing level in three months.
In summary, the markets are navigating a complex landscape of mixed economic signals and ongoing trade tensions. The modest slowdown in the ISM services index may have signaled to markets a softer growth outlook, prompting some move into 10-year Treasuries and causing yields to edge down, despite the still relatively strong economy.
[1] Source: Bloomberg [2] Source: Reuters [3] Source: Federal Reserve Bank of St. Louis [4] Source: U.S. Census Bureau [5] Source: U.S. Treasury Department
- With the economic growth modulating and inflation risk decreasing, investors may potentially allocate more funds to the business sector, increasing their investments in the financial markets.
- Amid the mixed economic signals and trade tensions, understanding the trend of the 10-year Treasury yield can offer insights into future policies regarding federal business and finance decisions.
