US yields rise as tariffs spur inflation fears

NEW YORK – US Treasury yields rose on Friday on concerns over the potentially inflationary impact of tariffs as trade wars between the US and its trading partners escalate, while a stock market recovery reduced safe-haven demand for US government debt.

Market participants are grappling with uncertainty over how many of President Donald Trump’s tariffs are going to be implemented as well as whether they will slow economic growth and lead to a renewed surge in prices.

“What you’ve had over the past week or two is a repricing of what’s called the Trump put lower for equities, while at the same time, understanding that tariffs are probably here to stay in some form and aren’t just a negotiating tactic,” said Zachary Griffiths, senior strategist at CreditSights.

Trump said on Thursday he was not going to change his mind on imposing sweeping reciprocal tariffs on all trading partners on April 2.

A report on Friday found that US consumer sentiment plunged to a nearly 2-1/2-year low in March and inflation expectations soared amid worries about tariffs.

Data this week has shown improving inflation, though some underlying components in the release of the consumer price and producer price reports for February were higher than expected.

That data will feed into the calculation of the Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation measure, which is due to be released on March 28. The inflation data for February is also seen as backward-looking, as it covers the period before tariffs were put in place.

The Fed is expected to hold interest rates steady when it concludes a two-day meeting next Wednesday, but investors will focus on Fed policymakers updated economic and interest rate projections for signs of whether they are becoming more concerned about the economic outlook.

“It’ll be interesting to see how the Fed re-marks its growth expectations and how they expect that to flow through to not only inflation, but what they ultimately do with the policy rate,” Griffiths said.

Fed funds futures traders see the US central bank as most likely to resume its rate cuts in June.

US stocks rebounded on Friday, reducing safe-haven demand for US bonds. Demand for Treasuries increased earlier this week amid sharp stock declines, which helped to keep 10-year yields near four-month lows reached earlier this month.

Higher German government debt yields, as Germany’s conservatives and two other parties agreed to a debt deal to dramatically boost spending, meanwhile, helped to pull US yields higher on Friday.

The yield on benchmark US 10-year notes was last up 3.4 basis points on the day at 4.31%. The 2-year note yield rose 6.2 basis points to 4.015%.

The yield curve between two-year and 10-year notes flattened by around 3 basis points to 29.5 basis points.

Traders are also watching discussions over a possible Russia-Ukraine peace deal.

The United States drew closer to its G7 allies on Friday, at least momentarily, to back Ukraine’s territorial integrity and warn Russia to follow Kyiv in accepting a ceasefire or face possible further sanctions.

The US Senate on Friday was poised to pass a stopgap spending bill and avert a partial government shutdown, removing one short-term risk that was contributing to investor anxiety.

(Reporting by Karen Brettell; Editing by Paul Simao and Nick Zieminski)