SINGAPORE: US Treasury yields fell to two-week lows on Tuesday after President Donald Trump refrained from imposing tariffs on his first day in office, but said he was thinking about them, unnerving markets and keeping investors worried about inflation.
In his inauguration speech, Trump declared immigration and energy emergencies, but only briefly mentioned tariffs and issued a memo that just directed agencies to investigate and remedy persistent trade deficits.
That stoked expectations the incoming administration will adopt a gradual approach to tariffs, sparking a short-lived relief rally in most non-dollar currencies, with stock futures also soaring before fresh comments from Trump jolted the markets.
Trump said he was thinking of imposing 25% tariffs on imports from Canada and Mexico, starting next month without offering details.
Trump also said he wanted to reverse the US trade deficit with the European Union, either with tariffs or more energy exports.
Market ructions in the wake of those comments were mainly felt in currencies, with Treasury yields staying lower as investors awaited further details.
“I think this is some of the typical Trump bluster that he wants to put a number and a date and then try to work backwards from there to get concessions,” said Christopher Hodge, chief US economist at Natixis.
“We continue to think that Trump is more bark than bite on tariffs, and he’s not going to follow through with his worst impulses.”
The yield on the benchmark US 10-year Treasury note fell 6.3 basis points to 4.548%, after touching a more than two-week low of 4.53%.
The yield on the 30-year bond fell 5.5 basis points to 4.79%.
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The two-year US Treasury yield, which typically moves in step with interest rate expectations, fell 3.8 basis points to 4.234%. Analysts cautioned that even a measured approach on tariffs could still stoke inflation worries and keep US rates higher for longer.
“If you look at what Trump said in his speech, it looks like he’s quite firm on tariffs,” 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 said.
The Federal Reserve last month shocked 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 US rate outlook, with markets pricing in 44 basis points of easing this year.
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