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Trump threatens tariffs on Apple iPhones and on EU imports

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Concerns over government spending and inflation weigh on

sentiment

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Bond market to be closed Monday for U.S. holiday

(Updated in New York afternoon time)

By Karen Brettell

May 23 (Reuters) -

Longer-dated U.S. Treasury yields fell on Friday after

President Donald Trump said he may enact tariffs on smartphone

giant Apple and imports from the entire European Union,

raising concerns about slowing economic growth.

Trump threatened to impose a 25% tariff on Apple for any

iPhones sold but not manufactured in the United States. More

than 60 million phones are sold in the United States annually,

but the country has no smartphone manufacturing.

Trump also said he would recommend a 50% tariff on the

European Union to begin on June 1, which would result in stiff

levies on luxury items, pharmaceuticals and other goods produced

by European manufacturers.

"Today is probably a response to some of the threats from

Trump to the EU and Apple and concerns over hurt growth," said

Mike Sanders, head of fixed income at Madison Investments.

Friday's drop in yields comes after a choppy week that saw

longer-dated yields rise on concerns about the deteriorating

U.S. fiscal outlook.

"The back end of the yield curve is really responding to the

fiscal situation here in the States and that the deficit is not

going to be in a better situation. We're still probably spending

too much as a country and long-term investors are getting

concerned," said Sanders.

"We could spend less, which doesn't seem likely, or we could

somewhat inflate our way out of it, and that's bad for long-term

bondholders," he said.

The House of Representatives passed a tax and spending bill

on Thursday that would add trillions to the U.S. debt load. U.S.

Senate Republicans said they will seek substantial changes to

the bill.

Thirty-year bonds have taken the brunt of the selloff and

posted the largest weekly increase in yields since April 7.

Moody's Investors Service last Friday cut the United States'

sovereign rating from the top "Aaa," citing the deteriorating

fiscal outlook.

The prospect of inflation remaining sticky has also weighed

on demand for U.S. bonds as the Trump administration negotiates

trade deals that are expected to retain some tariffs.

Bonds sold off sharply in the aftermath of Trump's April 2

"Liberation Day" announcement of larger-than-expected tariffs,

before recovering somewhat when most of the trade levies were

paused until July 7.

The 2-year note yield, which typically moves in

step with interest rate expectations, was little changed on the

day at 3.998%.

The yield on benchmark U.S. 10-year notes fell

3.6 basis points to 4.517%. It reached 4.629% on Thursday, the

highest since February 12.

The yield curve between two-year and 10-year notes

flattened to 52 basis points.

The 30-year bond yield fell 2.2 basis points to

5.042% after hitting 5.161% on Thursday, the highest since

October 2023.

The bond market closed early on Friday and will be closed on

Monday for the U.S. Memorial Day holiday.

Whether longer-dated yields will maintain upward momentum

may depend on economic data. If hard data begins to reflect a

weakening economy or labor market, traders are likely to bring

forward expectations on Federal Reserve interest rate cuts,

which would also boost demand for U.S. Treasury debt.

Higher inflation, by contrast, would likely keep the Fed on

hold for the foreseeable future. Fed funds futures traders see

the U.S. central bank as most likely resuming interest rate cuts

in September.

Businesses expect rising input costs and anticipate raising

their own prices as well, St. Louis Fed President Alberto

Musalem said on Friday.

Chicago Fed President Austan Goolsbee said U.S. firms

want consistency

in trade policy before making big investment or other

decisions.

The Treasury will sell $183 billion in short- and

intermediate-dated debt next week, including $69 billion in

two-year notes on Tuesday, $70 billion in five-year notes on

Wednesday and $44 billion in seven-year notes on Thursday.