TREASURIES-Yields drop after Trump unleashes tariffs

Updates to late-afternoon US trading

By Chuck Mikolajczak

NEW YORK, April 2 (Reuters) - U.S. Treasury yields fell late on Wednesday, erasing earlier gains, after President Donald Trump unveiled a slew of tariffs and higher levies against some of the country's biggest trading partners, sparking concerns about inflation and economic growth.

Trump announced a 10% baseline tariff on all imports to the United States while displaying a poster with a list of higher reciprocal tariffs against countries such as China.

"The White House and the staff that's making these decisions behind closed doors is 100% aware of the policies that they're putting in place and at least the rhetoric has created a slowdown in spending, both at the consumer and at the corporate level," said John Luke Tyner, fixed income analyst at Aptus Capital Advisors in Fairhope, Alabama.

Even with the tariffs, there could still be room for adjustments, Tyner said.

"So if you see companies or countries making investments back in, you just have to think that there's a little bit more negotiation than it is a hard-and-fast rule of whatever was on Trump's chalkboard up there today is the Bible of tariffs."

The benchmark U.S. 10-year Treasury note yield US10YT=TWEB fell 2.9 basis points to 4.127% after climbing as high as 4.236%.

Yields had been choppy before the tariff announcement, with initial declines before rebounding in the wake of solid economic data on the labor market and manufacturing.

The ADP National Employment Report on Wednesday preceded Friday's key government payrolls data, but it is usually not predictive of the Labor Department's report.

The 30-year bond yield US30YT=TWEB fell 1.8 basis points to 4.497% after reaching 4.582% earlier in the day.

The appetite for safe-haven assets such as U.S. Treasuries and gold .XAU has grown in recent weeks while riskier assets such as stocks have struggled over concerns Trump's tariffs will spark a global economic slowdown and stoke inflation. U.S. equity futures fell sharply after the tariffs announcement.

The 10-year yield closed out March with its third straight monthly decline and has now fallen for four straight sessions.

A closely watched part of the U.S. Treasury yield curve measuring the gap between two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 26.4 basis points.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, lost 2.1 basis points at 3.842%.

Markets are pricing in about 75 basis points of interest rate cuts by the end of the year, LSEG data showed, although comments by some Federal Reserve officials have suggested the Fed will be deliberate in adjusting rates lower.

On Tuesday, Chicago Federal Reserve Bank President Austan Goolsbee said while the "hard" data shows the underlying U.S. economy is solid, the labor market strong, and inflation down from its peak in 2022, a broad new set of tariffs under Trump could lead to renewed inflation or an economic slowdown.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities $(TIPS)$ US5YTIP=TWEB was last at 2.586% unchanged from Tuesday's close.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.333%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Richard Chang and Deepa Babington)

((charles.mikolajczak@tr.com; @chuckmik.bsky.social))