Court ruling on Trump tariffs jolted bonds and brought earlier rate cuts into view
The US Supreme Court’s decision to scrap former president Donald Trump’s global tariffs sent an immediate jolt through bond markets and revived expectations that the Federal Reserve could cut rates sooner than investors have anticipated.
US Treasuries extended their sell-off after the ruling, with the 10‑year yield climbing to about 4.10% as traders digested the prospect of higher federal borrowing and larger debt auctions to replace lost tariff revenue.
The court held that the administration exceeded its authority when it imposed reciprocal levies on trading partners, removing a revenue stream that helped slow the growth of government debt issuance.
“The Supreme Court decision will pave the way for accelerated rate cuts as inflation expectations from tariffs are now less of a factor,” Jamie Cox, managing partner at Harris Financial Group in Richmond, Va., told InvestmentNews.
“The looming question is what new authority the administration will use to salvage some of the tariff revenue,” he said.
The US Supreme Court ruled on Friday that President Donald Trump’s tariffs were illegal in a historic 6-3 ruling. The court deemed that the use of the International Emergency Economic Powers Act (IEEPA) was improper.https://t.co/r1Pz1ckjuw
— Mortgage Professional America Magazine (@MPAMagazineUS) February 20, 2026
Tariffs, deficits and the Fed’s next move
Jeff Buchbinder, chief equity strategist at LPL Financial, agreed that expectations of a Fed cut are now more sensitive to the tariff backdrop.
“We would fade a short-term bounce on the Supreme Court ruling because the Trump administration will quickly pivot to different legal grounds for replacement tariffs while deficits go higher in the interim. However, if lower tariffs help cool inflation, it could firm up expectations for Fed rate cuts later this year,” he said.
Bipan Rai, head of FX strategy at BMO Asset Management, called the initial market move “a knee-jerk reaction,” saying “the USD [is] lower and duration under a bit of pressure” after the ruling.
“We don’t see this as a dramatic shift over the long-term as the White House is likely to look at other measures as an offset to revenue loss,” he said.
Implications for mortgage rates and housing
For the mortgage market, the short-term picture remains complicated. A steeper Treasury sell-off tends to push up benchmarks used for mortgage-backed securities, pressuring primary mortgage rates even as the ruling removed one potential source of inflation.
If, over time, reduced tariff-related price pressures gave the Fed more confidence to cut, originators could see lower coupon levels and a reopening of rate‑and‑term refinance activity later in the year.
That would intersect with a housing market already straining under affordability pressures in many metros, such as San Jose, Honolulu and Miami. Industry forecasts also pointed to a gradual pickup in US mortgage originations from 2025 through 2027 as rates ease, led by a rebound in refinances.
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