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US 2-year, 10-year yields slip but tariff threat lingers

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US rate futures price in 44 bps of easing in 2025

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Analysts expect more to come

By Ankur Banerjee

SINGAPORE, Jan 21 (Reuters) - U.S. Treasury yields

slipped on Tuesday after President Donald Trump did not impose

tariffs on his first day in office, suggesting a gradual

approach to policies and providing relief to investors worried

about inflation resurfacing.

In his inauguration speech, Trump declared immigration and

energy emergencies, but only briefly mentioned tariffs and

issued a following memo that just directed agencies to

investigate and remedy persistent trade deficits.

The lack of firm details on tariffs led to a relief rally in

most currencies, with stock futures also soaring but new

comments from Trump unnerved the markets.

Trump said he was thinking of imposing 25% tariffs on

imports from Canada and Mexico. He said the action could come on

Feb. 1.

Analysts cautioned the relief rally might be temporary and

even a measured approach on tariffs could still stoke inflation

worries and keep U.S. rates higher for longer.

The yield on the benchmark U.S. 10-year Treasury note

fell 6.7 basis points to 4.544%. The yield on the

30-year bond fell 4.8 basis points to 4.797%.

The two-year U.S. Treasury yield, which typically

moves in step with interest rate expectations, fell 4.9 basis

points to 4.223%.

"If you look at what Trump said in his speech, it looks like

he's quite firm on tariffs. I think there's more to come there,"

said Zachary Griffiths, senior investment grade strategist at

CreditSights.

"If you have a more gradual, but still large tariffs in

terms of percentage on a broad swath of countries... that could

be more challenging from an inflation perspective for the Fed

and could even result in policy being tighter for longer,"

Griffiths added.

The Federal Reserve last month jolted the market by

projecting just two rate cuts in 2025, down from four predicted

previously, due to worries over inflation and the Trump

administration's election pledges.

Analysts have said that Trump's policies on immigration, tax

and tariffs will likely boost growth but also be inflationary.

The Fed is expected to hold rates steady this month but keep a

wary eye on inflation.

The lack of concrete tariff measures turned investors a

little more dovish on the U.S. rate outlook. Futures added about

4 basis points of extra Fed easing this year, putting rates at

3.90% by December.

The probability of a quarter-point cut as early as May edged

up to around 50%, from 31% a week earlier.

"From the move in the dollar, UST and equities you can see

that a pragmatic approach will be welcome news to markets across

the board," said James Athey, fixed income portfolio manager at

Marlborough.

"Of course assuming that today's rhetoric aligns with next

week and next month is always dangerous with this President."