Barclays analysts argue that the U.S. fiscal outlook has “materially improved,” helped by higher tariff revenues and the beginning of the Federal Reserve’s easing cycle—factors that could support a decline in long-dated Treasury yields.
In a research note, the bank said concerns over the bond market sparked by President Donald Trump’s flagship budget bill earlier this year have proven overstated, with U.S. government debt showing “notable resilience.”
Since mid-May, yields on 30-year Treasuries have dropped significantly, even as borrowing costs have climbed elsewhere. Yields move inversely to bond prices.
According to Barclays, markets have yet to fully factor in the shift in America’s fiscal trajectory, which has improved in part because of stronger customs receipts. Duties have surged to roughly $30 billion per month and could rise further if the effective tariff rate—already at 11% due to Trump’s sweeping trade levies—climbs higher. Still, investors appear to be discounting this revenue stream given the risk that the Supreme Court could strike down the tariffs later this year.
The analysts also noted that falling U.S. interest rates may contribute to narrowing the federal deficit by cutting the government’s interest bill on newly issued debt. While Bloomberg and Barclays’ joint research places the consensus U.S. budget shortfall at 6.5% of GDP in 2026 and 2027, the bank said 6% is “more likely,” with the possibility of an even smaller gap if the Fed eases more aggressively.
“We believe that consensus has not internalized the interest rate channel for reducing budget deficits,” Barclays strategists wrote.
The Fed last week trimmed its benchmark rate by 25 basis points and signaled the likelihood of a further 50 basis points in cuts to support the labor market. Against this backdrop, Barclays reaffirmed its call for 30-year Treasury yields to fall to 4.5%. As of Tuesday, the yield was at 4.748%.
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