Kaitou Macro stated that do not expect the yield of 10-year inflation protected bonds (TIPS) to continue to decline.

According to Kaitou Macro, long-term real yields in the United States may not continue to decline this year as investors are "beginning to understand" TIPS under the leadership of the new White House administration.

According to data on the St. Louis Federal Reserve website, the yield on 10-year TIPS has been falling to 2.07% so far this year, but it is still about 50 basis points higher than the level in September last year when the Federal Reserve began to ease its policy by cutting interest rates.

John Higgins, Chief Market Economist at Capital Economics, stated in a report on Tuesday that "although the net yield of 10-year TIPS has decreased since the beginning of this year, we doubt whether it will drop to even lower levels by the end of 2025." He said, "This is because we expect further small easing policies reflected in the money market will not become a reality.

According to the latest data from CME's Federal Reserve Watch tool, the pricing of the federal funds futures market on Tuesday reflects traders' expectations that the Federal Reserve may only lower its benchmark interest rate once this year, by 25 basis points from the current range of 4.25% -4.5%.

Higgins said, "Given the uncertainty surrounding Trump's trade and immigration policies, it wouldn't be surprising if the Federal Reserve puts things on hold until mid year. We believe investors may have underestimated the possibility of a major trade war breaking out and its impact on prices: if US tariffs eventually approach our working hypothesis, we believe the subsequent boost to inflation will prevent interest rate cuts later in 2025

Higgins stated that the 10-year TIPS yield has risen since September, in stark contrast to the typical scenario of a significant decline in long-term real yields during the early stages of the Federal Reserve's easing cycle, coincidentally reducing Trump's chances of winning the US presidential election. According to Higgins, this is because Trump's' stagflation 'policy proposal has led to an increase in 10-year inflation compensation and a reassessment of to what extent the Federal Reserve can lower its policy rate to ensure price stability.

Higgins said that the December CPI inflation report was "reassuring" and "only triggered a reversal in the 10-year TIPS yield," adding, "However, since the release of fairly healthy employment data last Friday and reports of rising consumer inflation expectations recently, the yield has rebounded again

Investors closely monitor inflation adjusted real interest rates as they can affect borrowing costs and economic activity, and may impact stock market valuations.

Since 2025, the US stock market has been rising, with the S&P 500 index closing relatively flat on Tuesday and accumulating a 3.2% increase so far this year. As investors weigh the new tariffs announced by President Trump, US bond yields rose on Tuesday.

On Tuesday, the yield on 10-year US Treasury bonds rose 4.4 basis points to 4.536%, the highest level since February 3rd. According to Dow Jones market data, this is at the level of 3pm Eastern Time in the United States.

President Trump announced a 25% tariff on steel and aluminum on Tuesday, while traders are also concerned about reciprocal tariffs imposed on US trading partners.

Investors are concerned that aggressive tariffs may harm economic growth or increase inflationary pressures. The US January CPI report will be released at 21:30 Beijing time on Wednesday.