US tariff turmoil leaves Treasury markets dazed

• Potential tariff refunds of around $170 billion could force additional Treasury issuance, risking curve steepening pressure particularly at the long end amid already elevated borrowing needs
• Trump's 15% replacement tariff lasts only 150 days with unclear implementation details, down from original levies that were projected to generate $300 billion annually over the next decade
• The dollar has dropped nearly 12% since Trump's second term began in early 2025, falling 0.4% against the euro on Monday as uncertainty mounts over fiscal deficits and trade policy

US Tariff Turmoil Leaves Treasury Markets Dazed - Summary

The Supreme Court struck down President Trump's tariffs on February 20, 2026, creating significant uncertainty in Treasury markets, U.S. debt, and the dollar rather than providing relief. The ruling left the refund question unresolved, potentially creating a $170-175 billion hole in U.S. finances from tariff revenues already collected.

Market Reactions:

• The dollar fell approximately 0.4% against the euro Monday, declining nearly 12% since Trump's second term began in early 2025
• Dollar weakened notably against safe-haven currencies like the Swiss franc and yen
• 10-year Treasury yields moved slightly higher to 4.1% on Friday, down from mid-2025 peaks above 4.5%
• Futures-implied yields dropped marginally to 4.05% on Monday

Policy Developments:

Trump quickly imposed replacement tariffs at 15% for 150 days, lower than previous rates. The Congressional Budget Office had estimated original tariffs would generate $300 billion annually over the next decade. The lower replacement tariffs should ease short-term inflation pressures, but uncertainty remains regarding their scope and duration.

Key Concerns:

Analysts worry about potential additional Treasury issuance if refund litigation succeeds, particularly problematic given elevated borrowing needs and ongoing quantitative tightening. The fiscal deficit impact is estimated at over $175 billion against total projected revenues exceeding $5 trillion.

Outlook:

Market opinion is divided. Some analysts believe markets won't worry significantly about fiscal deficits if Trump finds tariff substitutes and funds through shorter Treasury bills. Others warn the situation reflects U.S. government finances "out of control," predicting yield curve steepening. Trump's proposed $2,000 tariff rebate to Americans appears unlikely to materialize.