Yields inch higher on tariff exemption hopes, patient Fed

NEW YORK – US Treasury yields inched higher on Wednesday as investors weighed potential exemptions from US President Donald Trump’s tariffs and Federal Reserve officials signaled a patient approach to interest rate cuts.

Trump indicated on Monday that not all of his threatened levies would be imposed on April 2 and some countries may get breaks. This has given some reprieve this week to investors rattled by the expected inflationary impact and hit on US growth from aggressive US trade policies.

Still, uncertainty around US import levies gripped markets again on Wednesday as Trump prepared to announce tariffs on the auto industry later in the day.

“This psychological churn is, I expect, what we’ll see at least until that April 2 date, but probably even beyond, because there’s so many moving parts. We have all the macro data and we have all the tariffs uncertainty,” said Mark Hackett, chief market strategist at Nationwide.

Yields, which move inversely to prices and tend to rise on expectations of higher growth and inflation, edged higher, with the benchmark 10-year yields last at 4.34%, up 3-1/2 basis points from Tuesday. Two-year yields were last at 4.01%, one basis point higher.

St. Louis Fed President Alberto Musalem said on Wednesday the Fed had no urgency to cut rates given ongoing growth, and cautioned that tariffs could trigger more persistent price pressures. Minneapolis Fed President Neel Kashkari said the Fed should stay put amid continued policy uncertainty and the effect of tariffs on the economy.

“Markets are still trying to unpack … the fear of higher inflation related to potential tariffs, but the Fed is seemingly remaining patient because the data is not showing that high inflation yet, even though there’s so many expectations for it,” said Joe Bell, chief investment officer at Meeder Investment Management.

On the economic data front, the February reading of durable goods orders, released by the US Commerce Department on Wednesday, was stronger than anticipated. New orders for key US-manufactured capital goods unexpectedly fell in February.

Wednesday’s data followed the release of a Conference Board survey on Tuesday showing US consumer confidence plunged to the lowest level in more than four years this month, with households fearing a coming recession.

BofA Securities analysts said in a note on Wednesday that US Treasury yields remained stuck between two opposing themes: they have adjusted lower in recent weeks to account for heightened growth concerns stemming from tariff uncertainty. At the same time, economic fundamentals have held firm, and inflation risks remain high.

Portfolio reallocations in the last days of the quarter, when money managers adjust portfolios to account for the quarter’s moves in stocks and bonds, may have also added some selling pressure, said Tony Farren, managing director at Mischler Financial Group.

“That trade has started, it’s not something you can do just the last day of the quarter … you have to ease your way into it,” he said, talking about investors selling bonds for stocks.

The Treasury sold USD 70 billion in five-year notes on Wednesday in an auction to lukewarm demand. The 4.1% yield was marginally above market at the bidding deadline, suggesting investors demanded higher compensation to absorb them.

The bid-to-cover ratio, a measure of demand, was 2.33 times, the lowest since May 2024.

(Reporting by Davide Barbuscia; Editing by Sharon Singleton and Richard Chang)