According to Zhitong Finance APP, as tariffs influence the Federal Reserve's interest rate path and concerns about U.S. economic growth intensify, a popular trade is gaining momentum in the U.S. Treasury market: buying 5-year U.S. Treasuries. Ahead of the April 2 deadline for tariffs set by President Trump, the options market shows that traders tend to hold exposure to U.S. Treasuries maturing in 5 years. This high demand has pushed the additional cost of holding options to its highest level since September of last year.
Priya Misra, a portfolio manager at JPMorgan Asset Management, stated, &#34;Due to rising inflation, the Federal Reserve may start to continue cutting rates later, and the 5-year bonds should be the biggest beneficiaries. The longer the Fed waits, the more they will need to cut overall rates.&#34;
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In recent months, 5-year U.S. Treasuries have been touted on Wall Street as attractive government bonds, primarily due to their relative resilience to dual risks. In contrast, 2-year U.S. Treasuries are extremely sensitive to the Fed's interest rate policy, while 10-year and 30-year U.S. Treasuries are often more affected by concerns about the health of the U.S. economy and the expanding deficit.
Goldman Sachs recently pointed out that 5-year U.S. Treasuries provide a safe balance. Since the Fed's most recent meeting, Barclays, Morgan Stanley, and Wells Fargo have all been promoting the so-called &#34;curve belly&#34; trade.
Investors are increasingly worried about whether tariffs will—and to what extent—ultimately stimulate inflation, thereby keeping the Fed on the sidelines, especially as Fed officials cite uncertainty. As a result, the yield on the policy-sensitive 2-year U.S. Treasuries has risen from a low of around 4% in early March, as the market had previously priced in two rate cuts starting in July this year.
In recent weeks, the yield on 10-year U.S. Treasuries has also climbed, as deteriorating consumer confidence has raised investor concerns about important data releases, including the March non-farm payroll report due on April 4. Meanwhile, option trends over the past week indicate that traders expect the yield on 5-year U.S. Treasuries to drop to around 3.55% by April 25.
The yield on the $70 billion 5-year U.S. Treasury auctioned on Wednesday was 4.1%, slightly above the market trading price. This indicates that investors are demanding higher returns when selling. However, the yield spread between the 2-year and 30-year U.S. Treasuries is the largest since September of last year, as the Congressional Budget Office warned that the federal government may run out of sufficient funds to pay all its bills on time as early as August. Most U.S. Treasury yields rose by 1 to 3 basis points that day, while the U.S. stock market plummeted due to concerns over tariffs

As tariffs influence the Federal Reserve's interest rate path, the 5-year U.S. Treasury bond has become favored in the market, turning into a safe-haven asset. Investor demand for it has surged, pushing option costs to their highest level since last year. JPMorgan Chase stated that the 5-year bond will benefit from the Fed's potential delay in interest rate cuts. In contrast, the 2-year bond is sensitive to interest rate policies, while the 10-year and 30-year bonds are affected by economic health. Goldman Sachs pointed out that the 5-year bond offers a safe balance as investor concerns about inflation and tariffs intensify

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