By Jamie Chisholm
U.S. bond yields fell early Tuesday as Treasurys returned from the holiday weekend and got the first chance to welcome news that President Donald Trump did not immediately announce a swathe of tariffs on U.S. imports.
What’s happening
— The yield on the 2-year Treasury BX:TMUBMUSD02Y dipped 2.3 basis points to 4.268%.
— The yield on the 10-year Treasury BX:TMUBMUSD10Y fell 5.6 basis points to 4.574%.
— The yield on the 30-year Treasury BX:TMUBMUSD30Y slipped 5.9 basis points to 4.801%.
What’s driving markets
With no top drawer economic data due Tuesday, and with Federal Reserve officials in the media blackout period ahead of next week’s policy meeting, bond investors were focusing on what did not happen in Washington.
Contrary to his previous pledges, President Donald Trump did not slap a range of tariffs on goods coming into the U.S. immediately after his inauguration.
Import tariffs are considered by many investors to be inflationary and thus damaging to bonds, and the possibility of their arrival has contributed to the move higher in benchmark Treasury yields since Trump’s election victory in early November.
The Treasury market was closed on Monday for the Martin Luther King Jr. commemoration, so U.S. paper delivered its first reaction to the lack of tariffs on Tuesday.
President Trump did later Monday allude to the possibility of tariffs on Mexico and Canada at the start of February, though for now traders appear to be treating those comments as off the cuff and not yet concrete policy.
The lack of tariffs “raised hopes that Trump would initially try and reach a deal with US trade partners, with tariffs as a potential point of leverage, rather than something to be used immediately,” said Jim Reid, strategist at Deutsche Bank.
However, some analysts believe tariffs are still likely. “Our working assumption is still that Trump will levy a 10% universal tariff with a 60% tariff on imports from China sometime in the second quarter of this year,” said Paul Ashworth, chief U.S. economist at Capital Economics.
“Some of Trump’s closest advisers would clearly like to limit the scope and size of those tariffs, but we suspect that Trump himself remains steadfast in his protectionist intentions and he will eventually win the internal debate,” Ashworth added.
-Jamie Chisholm
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01-21-25 0508ET
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