Bond market traders are increasing bets on a potential US recession.

Bond market traders are increasing bets on a US recession as concerns grow that Donald Trump’s tariff-driven trade war could weaken American economic growth.

The yield on two-year US Treasury bonds fell below 4% during overnight Asian trading after the former president warned on Sunday that the US economy is entering “a period of transition.”

His remarks echoed those of Treasury Secretary Scott Bessent on Friday, who has expressed support for declining US bond yields—a key indicator of government borrowing costs.

Short-term bond yields have dropped sharply since mid-February as Trump’s tariff policies against allies and China fuel economic uncertainty. Investors have rushed into US Treasuries, a traditional safe-haven asset, amid rising expectations that the Federal Reserve will need to cut interest rates to support growth.

“Recession risk is definitely higher because of the sequence of Trump’s policies—tariffs first, tax cuts later,” said Tracy Chen, a portfolio manager at Brandywine Global Investment Management, in an interview with Bloomberg.

The benchmark 10-year Treasury yield declined three basis points to 4.27%. The drop in US bond yields contrasts sharply with Europe, where yields have surged following Germany’s announcement of a €500 billion investment fund for defense and infrastructure, marking a shift in its fiscal policy.

“Just a couple of weeks ago, we were getting questions about whether the US economy was re-accelerating—now suddenly, the R-word is coming up repeatedly,” said Gennadiy Goldberg, head of US interest rate strategy at TD Securities, in a Bloomberg interview.

“The market has swung from optimism about growth to outright despair.”