MW Treasury yields rise as China tariff retaliation adds to inflation concerns
By Jamie Chisholm
U.S. bond yields inched slightly higher early Tuesday, amid fears about the possible inflationary impact of a trade war between the U.S. and China and as investors turned their focus to labor market reports over the next few days.
What's happening
-- The yield on the 2-year Treasury BX:TMUBMUSD02Y fell 0.5 basis points to 4.260%.
-- The yield on the 10-year Treasury BX:TMUBMUSD10Y climbed 1.2 basis points to 4.576%.
-- The yield on the 30-year Treasury BX:TMUBMUSD30Y rose 1.4 basis points to 4.811%.
What's driving markets
Longer-term Treasury yields are a fraction higher after China raised tariffs against U.S. energy and some vehicles, bolstering concerns that a prolonged trade war between the world's two biggest economies may increase inflationary pressures.
See also: Trump's tariff moves upend inflation expectations in financial markets
However, the more monetary policy-sensitive 2-year U.S. yield dipped as investors made bets that tit-for-tat tariff increases may also damage economic growth in the short term.
Still, the overall market reaction - in fixed income, stock-index futures and forex - is relatively mild early Tuesday compared to the volatility seen on Monday, when traders reacted to U.S. tariffs on Mexico and Canada that were later in the day postponed.
The calmer tone may allow investors to turn their focus to the health of the U.S. economy as the rest of the week sees a batch of labor data, starting with the job openings, or JOLTs report on Tuesday at 10:00 a.m. Eastern, and culminating with the January nonfarm payrolls report on Friday.
"Any strength in data will further fuel the Fed hawks and help push back the expectation of the next rate cut further down the road. For now, the first rate cut is being priced in for June - [at] the earliest," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The Federal Reserve is expected to take its Fed funds rate target down to around 3.925% by December, according to 30-day Fed Funds futures, suggesting just two 25 basis point cuts this year.
Other U.S. economic data due Tuesday include factory orders for December, released at 10:00 a.m. Eastern.
Federal Reserve officials making comments include:
-- 11:00 a.m. Atlanta Fed President Raphael Bostic speaks on housing.
-- 2:00 p.m. San Francisco Fed President Daly speaks on the economic outlook.
-- 7:30 p.m. Federal Reserve Vice Chairman Philip Jefferson speaks on the economy and monetary policy.
-Jamie Chisholm
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(END) Dow Jones Newswires
February 04, 2025 05:10 ET (10:10 GMT)
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