US yields edge higher as traders await clarity on tariff policy in Trump speech

NEW YORK – US Treasury yields held in a narrow range on Tuesday, edging modestly higher, as investors continued to weigh the Supreme Court’s decision blocking President Donald Trump’s tariffs imposed using emergency powers, while they looked to his upcoming speech for signals on trade policy.

Trump will deliver the traditional State of the Union address to Congress on Tuesday night, offering him a chance to persuade voters to keep Republicans in control of the US House of Representatives and Senate in the midterm elections in November. The president is also expected to address the Supreme Court’s decision last week on tariffs, arguing that the court erred and outlining alternative laws he can use to reinstate most of the import levies that were struck down.

“He’s going to talk about tariffs, and he’s certainly going to express disappointment in the (Supreme Court) decision,” said Gregory Faranello, head of US rates strategy at AmeriVet Securities in New York. “But with tariffs, there’s more than one way to skin a cat, so they’ve got different vehicles that they can use, and they’re doing that. We hashed out the extremes of this last year, and this will continue to evolve and play ou,t but we see the extremes behind us.”

In afternoon trading, the benchmark 10-year yield was up a basis point (bp) at 4.037%. On Monday, it hit its lowest level since late November.

US 30-year yields were flat on the day at 4.696%.

On the front end of the curve, the two-year yield, which reflects interest rate expectations, was up 2.1 bps at 3.461%.

The Treasury on Tuesday auctioned USD 69 billion in US two-year notes, and the results were lackluster. The auction priced at 3.455%, slightly higher than the expected yield at the bid deadline, suggesting investors demanded a modestly higher premium to take down the note.

The bid-to-cover ratio, another measure of demand, was 2.63X, marginally lower than the three-auction average of 2.66X.

The last two-year note auction in January went smoothly, with end-user demand, which combines both indirect and direct bids, hitting the highest level since February 2025.

J.P. Morgan, in a research note, had pointed out earlier prior to the auction, that the two-year note sale could be hard to digest, “given lower outright yields and a less supportive macro backdrop.”

FLATTER US YIELD CURVE

In other pockets of the bond market, the yield curve flattened for a 10th straight session on Tuesday, with the spread between two-year and 10-year yields declining to 57.2 bps, compared with 58.9 bps late on Monday.

The curve showed a bear flattening scenario, in which shorter-dated rates are rising faster than longer-term maturities. This situation likely reflects expectations that the Federal Reserve could continue the pause of its rate-cutting cycle as it looks to tamp down rising inflation.

US fed funds futures on Tuesday priced in about 56 bps of easing this year, or about two rate cuts of 25 bps each. That expectation has been in place since the beginning of 2026. The first rate cut is not expected until July or September.

US economic data, meanwhile, were mixed, with gains in single-family home prices slowing in December. House prices edged up 0.1% after an upwardly revised 0.7% increase in November, the Federal Housing Finance Agency said on Tuesday. House prices were previously reported to have advanced 0.6% in November.

Consumer confidence, on the other hand, rebounded more than expected in February amid an improvement in households’ perceptions of the labor market.

The Conference Board said its consumer confidence index rose to 91.2 this month. Economists polled by Reuters had forecast the index would be at 87.0. Data for January was also revised higher to show the index at 89.0 instead of 84.5, which was the lowest level since May 2014.

Treasuries, however, showed little reaction to the US numbers.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Paul Simao and Will Dunham)