Reuters Poll: Tariff Inflation Will Keep Long-Term Treasury Yields Elevated Through 2025

Published: August 12, 2025 | By Mariusz Kurylo

A Reuters poll of bond market strategists released in August 2025 found that the majority expected long-term U.S. Treasury yields to remain elevated — and potentially move higher — through the end of the year, driven by the inflationary effects of tariffs and the sheer volume of government debt issuance.

The poll, which surveyed 40 fixed-income strategists at major U.S. and European banks, found a median forecast of 4.5% for the 10-year Treasury yield by year-end 2025 — up from approximately 4.2% at the time of the poll. The 30-year yield was forecast to remain above 4.7%.

Tariffs as an Inflation Force

The mechanism by which tariffs lift bond yields is straightforward but often misunderstood. When import prices rise due to tariffs, consumer prices follow — particularly for goods like electronics, clothing, furniture, and automobiles that are heavily imported. This tariff-driven inflation forces the Federal Reserve to keep rates higher than it otherwise would, which in turn keeps short-term bond yields elevated.

But the August Reuters poll identified a second, less obvious channel: expectations inflation. Bloomberg's fixed-income team noted that TIPS breakeven rates — the market's implied inflation forecast — had risen to 2.6%–2.8% by August 2025, well above the Fed's 2% target. When inflation expectations rise, investors demand higher nominal yields on Treasury bonds to ensure a positive real (inflation-adjusted) return. This is why tariffs that haven't yet fully hit consumer prices can still push bond yields higher.

The Fed's Balance Sheet Problem

One factor the Reuters poll flagged repeatedly was the Federal Reserve's $6.6 trillion balance sheet — still enormous despite several years of quantitative tightening. The Fed had been slowly reducing its Treasury and mortgage-backed securities holdings, but the pace of reduction was far slower than the pace of new Treasury issuance by the government.

Bond Buyer's analysts calculated that the net effect of Fed balance sheet reduction combined with new deficit-driven issuance was a surge in the supply of bonds that the private market needed to absorb. When supply rises and demand is uncertain, prices fall — and yields rise.

The Wall Street Journal's August bond market report noted that primary dealer banks — required to purchase whatever isn't bought at Treasury auctions — were carrying elevated inventory levels, a sign that bond demand from end investors was not fully keeping pace with supply.

International Demand: The Key Unknown

Perhaps the most consequential variable for the 2025 bond market was the behavior of foreign investors. Reuters reported that net foreign purchases of U.S. Treasury securities had slowed significantly in the months following Liberation Day, as trade partners reassessed their willingness to recycle trade surpluses into U.S. government bonds.

Japan's Ministry of Finance data, reported by Bloomberg, showed Japanese pension funds and life insurers — among the largest buyers of long-duration U.S. bonds — had reduced their purchases by roughly 15% year-over-year. The Financial Times noted that with the yen strengthening modestly against the dollar, the currency hedging costs that make U.S. bonds attractive to Japanese investors had also risen, reducing returns.

The net effect: less foreign demand for U.S. bonds precisely when the supply of those bonds was near record highs.

What Bond Investors Were Doing in August 2025

Despite the challenging environment, the August Reuters poll found that most bond strategists were not predicting an imminent crisis — but rather a prolonged period of elevated yields that would create headwinds for stock valuations, housing affordability, and federal fiscal flexibility.

Investor Business Daily reported that institutional investors were shortening their bond duration — moving out of 20- and 30-year bonds and into 2- and 5-year notes — to reduce exposure to the rate risk inherent in long-duration fixed income. Cash and short-term Treasury bills were seeing record inflows.

For individual investors, the message was clear: in an environment of structurally higher yields, the 60/40 portfolio (60% stocks, 40% bonds) faces headwinds from both sides. Diversifying into real assets, commodities, and inflation-protected securities was the consistent advice from the strategists Reuters surveyed.

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Sources: Reuters, Bloomberg, Financial Times, The Wall Street Journal, Bond Buyer, Investor Business Daily

Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, legal, or investment advice.