Baker Market Update
2025-04-11

A truly wild week in the markets with more historic and notable stats than we can possibly cover in one brief recap, but we’ll hit a few highlights. The rapidly evolving tariff situation was the chief catalyst for tremendous turmoil this week, spurring some of the most volatile days since the onset of the pandemic. With so much changing so fast, it probably behooves us to start simply at the end of this week’s developments as what happened at the beginning of the week is no longer very relevant at this point!

This morning, Treasury prices are falling again, heading toward their worst weekly loss since the 2019 liquidity crisis in the repo market. The benchmark 10-year yield is now up more than 50bps in just a week. Notably, that 2019 selloff prompted an emergency intervention by the Fed, which appears an unlikely conclusion to the current turmoil. Bonds whipsawed throughout the week, along with other asset classes, as sweeping global tariffs were announced, and then walked back, and then other tariffs escalated. The abrupt changes caused leverage trades to come undone and sent buyers to the sidelines. There is much speculation about whether a blowup in hedge fund basis trades or a serious exodus of foreign investors from Treasuries is to blame for the selloff, or perhaps both. US Treasuries are really the backbone of the global financial system, and that system may be beginning to seize up.

The US dollar also tumbled this week by the most since 2022, as overseas investors reallocated out of US assets and into the relative stability of European assets. Notably, investors flocked to German bunds this week as US Treasuries sank and bunds posted the biggest outperformance relative to Treasuries since at least 1989. The volatility has clearly eroded the appetite for US assets and the market is facing a potential loss in confidence in US policy and US assets. More volatility is likely still a head, which depending on your perspective can be a headache or an opportunity.

A bit of good news this morning came in a report that wholesale prices unexpectedly fell in March for the first time since October 2023. The Producer Price Index (PPI), which tracks inflation at the producer/seller level, unexpectedly fell 0.4% (vs. +0.2% survey) for the month of March and rose 2.7% from a year ago (vs. 3.3%). Core PPI fell 0.1% (vs. +0.3%) and 3.3% from a year ago (vs. 3.3%). Producer inflation does not normally move markets as much as consumer inflation, but it can be an important leading indicator in that it reflects price increases at the wholesale level before they reach consumers.

This report also comes one day after the Bureau of Labor Statistics (BLS) reported that consumer prices fell in March for the first time since 2020, reinforcing a new trend in data showing inflation moving lower. However, markets are clearly more focused on the potential inflationary impact of tariffs in the months ahead to price in lower inflation expectations. The Consumer Price Index (CPI) posted an unexpected decline for the month of March, falling 0.1% (vs. +0.1%). That brought the YoY increase to just 2.4% (vs. 2.5%). Core CPI also significantly undershot expectations, rising 0.1% (vs. 0.3%) for the month and 2.8% from a year ago (vs. 3.0%).

Next week, will likely bring more on the tariff situation and likely more volatility in the market…brace yourself! And enjoy the weekend!