(Bloomberg) -- US Treasury bonds fell after President-elect Donald Trump threatened to slap additional tariffs on US trade partners, partially evaporating the gains spurred by the choice of Scott Bessent to head the department.
Tuesday's declines lifted yields by one to four basis points across maturities after Trump said he'd impose additional 10% tariffs on goods from China and 25% tariffs on all products from Mexico and Canada. The market had its second-biggest advance this year on Monday on speculation Bessent would be able to modify Trump's plans.
"All else equal, tariffs put upward pressure on inflation and they put downward pressure on growth," said Liz Ann Sonders, chief investment strategist at Charles Schwab. "An actual increase in inflation is something that is not anticipated in general by market participants, and I think that could be the big surprise."
The yield on 10-year Treasuries rose by four basis points on Tuesday to 4.31% after sliding some 13 basis points on Monday.
Traders, meantime, continue to wrestle with the outlook for additional Federal Reserve interest-rate cuts, which may depend on how the incoming administration's policies play out. Treasury yields have mostly risen since the initial half-point rate cut in September and the quarter-point move on Nov. 7.
The odds of another quarter-point rate reduction on Dec. 18 have dwindled to about 50%, while from now through the end of next year, markets are pricing in fewer than three quarter-point cuts.
Minutes from the Fed's most-recent policy meeting showed officials indicated broad support for a careful approach to future rate cuts — and that they're considering a "technical adjustment" to the rate offered for the overnight reverse repurchase facility.
Also key this week are economic data Wednesday including the Fed's preferred gauge of inflation.
Minneapolis Fed President Neel Kashkari said late Monday it's still appropriate to consider another interest-rate cut in December. San Francisco Fed President Mary Daly, meantime, said in a podcast that while she doesn't want the labor market to deteriorate, the central bank still needs to bring inflation down from its current levels.
Chicago Fed President Austan Goolsbee said it would be "perfectly sensible" for the US central bank to slow down the pace of its interest-rate cuts as it approaches what it deems a neutral setting for monetary policy.
A $70 billion auction of five-year notes at 1 p.m. New York time attracted solid investor appetite. Monday's two-year sale was also met with plenty of demand.
(Adds auction results, Goolsbee comments and Fed meeting minutes.)
More stories like this are available on bloomberg.com
