Treasury Yields Rise as Greenland Deal Eases Tariff Fears

U.S. Treasury yields ticked higher on Thursday but held within a tight range as investors weighed a temporary pause in trade tensions against ongoing geopolitical uncertainty. A new framework deal regarding Greenland, negotiated by President Trump with European leaders, has taken the immediate threat of tariffs off the table, providing some relief to the bond market.

President Trump confirmed on Thursday that the U.S. had secured "total and permanent" access to Greenland through a deal with NATO. The announcement followed his decision a day earlier to withdraw tariff threats against European goods, calming investors who had been selling off Treasuries amid escalating global tensions.

Geopolitical Truce Provides Temporary Relief

While the de-escalation has been welcomed, market participants remain cautious. The relief from what one analyst called a "policy shock" may only be temporary.

"A little bit of the policy shock has been taken off the table, but only for the moment," noted Tony Rodriguez, head of fixed income strategy at Nuveen. "It increased the market's wariness around the potential for this to happen again."

Rodriguez added that while a framework for Greenland is being discussed, the situation could easily deteriorate. "Geopolitical risk from tariffs specifically from a policy perspective is probably going to remain a risk factor for the market, more than people thought maybe a month ago," he said.

A Snapshot of Key Treasury Yields

In late morning trading, the bond market reflected this cautious sentiment with minor upward movements in yields.

• The benchmark 10-year Treasury yield rose 1.6 basis points (bps) to 4.271%, after hitting its highest level since late August on Tuesday.

• The 30-year bond yield edged slightly higher to 4.871%, which had also reached its highest point since early September earlier in the week.

• At the shorter end of the curve, the 2-year yield was up 2.4 bps at 3.621%.

Mixed Economic Data Fails to Move the Needle

Thursday's domestic economic reports were mixed and had little discernible impact on Treasury trading.

Data on the labor market showed that new applications for unemployment benefits increased by just 1,000 to a seasonally adjusted 200,000 for the week ended January 17. This figure was better than the 210,000 claims economists had forecast.

Meanwhile, a separate report from the Bureau of Economic Analysis showed that GDP growth was revised upward to a 4.4% annualized rate for the third quarter. This is the fastest pace since the third quarter of 2023 and an increase from both the initial 4.3% estimate and the second quarter's 3.8% growth rate.

Yield Curve Flattens as Inflation Concerns Subside

With the immediate threat of tariffs removed, the Treasury yield curve continued to flatten on Thursday. The spread between the 2-year and 10-year yields narrowed to 64.8 bps from 65.4 bps in the previous session.

This move marks a reversal from earlier in the week. On Tuesday, concerns about sticky inflation had pushed the spread to a two-week high of 70.9 bps.

However, recent inflation data has been relatively benign. The PCE price index, a key inflation gauge, rose 0.2% in November, matching the gain in October. On an annual basis, the index climbed 2.8%. The core PCE index, which excludes food and energy, showed identical increases of 0.2% for the month and 2.8% for the year.

Despite the calm figures for October and November, analysts noted that inflation is expected to show a stronger pace in December.