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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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Trump says thinking of tariffs on Canada, Mexico next

month

(Adds comments, updates prices)

By Ankur Banerjee

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

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

U.S. 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 U.S. 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%.

The two-year U.S. 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 U.S. 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 U.S. rate outlook, with markets

pricing in 44 basis points of easing this year.