US yields fall as tariffs trump Powell's less rosy view

NEW YORK: US Treasury yields fell on Thursday with the 10-year hitting near three-week lows as President Donald Trump's plan for stiff tariffs on steel and aluminum stoked fears of retaliation from US trading partners and rising costs for consumers.

The 25 percent tariffs on imported steel and 10 percent levies on aluminum in a bid to protect US producers overshadowed testimony from Federal Reserve Chairman Jerome Powell, who told US lawmakers that, while the economy was doing well, there was scant evidence it was overheating or propelling wages decisively higher.

"It's causing people a lot of angst," Carl Kaufman, portfolio manager at Osterweis Capital Management in San Francisco, said of the tariffs, but he downplayed the risk the move will spiral into a trade war.

Trump's tariff announcement came after Powell's testimony to the Senate Banking Committee, in which he said "there is no evidence the economy is overheating."

Powell's comments, the second part of his inaugural testimony before Congress as Fed chief, were seen as less upbeat than his remarks on the US economy before the House of Representatives Financial Services Committee two days earlier. Bets had grown that the Fed may raise short-term rates four times in 2018, one more than policymakers projected in December.

"They seemed more even keel. He's a little less upbeat, but he's still upbeat," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York.

The benchmark 10-year US Treasury note yield was at 2.802 percent, down over 6 basis points from late on Wednesday. It fell to a two-week low of 2.795 percent earlier on Thursday, Reuters data showed.

The two-year yield fell to 2.214 percent, the lowest in almost two weeks after hitting a more than nine-year high of 2.286 percent on Wednesday.

The spread between five-year and 30-year yields was 51.0 basis points, wider than the 48.2 basis points late on Wednesday, Tradeweb data showed.

As Powell was testifying, New York Fed President William Dudley, speaking in Sao Paulo, said four rate increases in 2018 would still constitute a "gradual" tightening.

On the data front, the Commerce Department said US consumer prices increased in January, with a gauge of underlying inflation posting its largest gain in 12 months. That bolstered views that price pressures will accelerate this year.

The Labor Department said first-time filings for unemployment benefits fell to a 48-year low last week, while the Institute for Supply Management said its barometer of national factory activity reached its strongest since May 2004.