May 2025 - Bonds & Tariffs

Author: Brian Zellers, CFP®, AAMS®

Date: 5/22/2025

News from the bond market on May 21st and the ongoing uncertainty about tariffs continues to create a lot of noise and volatility. If you recall the Tariff Turmoil Turnaround series from back in early April, one of the key points was to stay invested because market recoveries have always happened. So far, this has been the case. That doesn’t mean it’s over yet. There are still many questions that remain about bonds and tariffs so let’s cut through the headlines and focus on what really matters.

BONDS – The main headline from many media outlets is that bond yields are moving higher, meaning bond prices are moving lower. The question is, how high can yields go, and what effect would that have? If you watch financial news outlets, they have a way of making things seem very scary if this happens.

The graphic below from PIMCO shows how different types of bonds may perform if yields continue to move higher (the blue column on the far left). The most important thing to understand here is that green is good! There is far more green than red meaning, that in most cases, higher yields still result in positive bond performance over the following twelve months.

TARIFFS – Most readers have heard a lot about them, and continuing to keep a close watch on what will happen for the foreseeable future is prudent. The media has made it seem like tariffs are something new, and that we (the US) are the only country imposing tariffs on other countries.

The next graphic shows the historic average tariff rates that other countries (navy blue) have imposed on imported goods compared to the average US tariff rate (orange) on imports. Interestingly enough, the average historical rate for the US has been much lower than most other countries.

Contrary to popular belief, tariffs aren’t anything new and if you look at the market’s reaction, staying invested resulted in positive returns from December 2017 through January 2020. The final graphic shows how tariffs affected the year-over-year change in inflation (orange line) and the stock market (navy blue) during Trump’s last term.

Does that mean this is what’s going to happen this time around?  No one has any way of knowing that, but many times historical trends tend to rhyme, even if they don’t repeat.

All of this helps to provide confidence in the long-term outlook for both bonds & stocks. Active management and dynamic portfolio construction can help to mitigate risk in the short term while taking advantage of market volatility for both bonds and stocks that can help lead to long-term success. To get there – Stay Invested. Work with us. And keep your focus Beyond the Noise.

IMPORTANT DISCLOSURES:  Material should not be regarded as a complete analysis of the subjects discussed. All the information is for educational purposes only and should not be misinterpreted as investment advice. Past performance does not guarantee future results. It should not be regarded as a complete analysis of the subjects discussed.  Different types of investments involve varying degrees of risk. All investment strategies have the potential for profit or loss. Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts which cannot be fully explained without the assistance of a professional from EWM. Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach. Only your professional adviser should interpret this information. The Standard and Poor's 500 is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States.