US Treasuries Extend Rally as Trump Vows New Tariffs

Treasury yields extended their decline on Thursday as investors reacted to President Donald Trump's latest tariff threats and a producer price report that eased concerns about inflation.

The yield on the 10-year Treasury note fell more than 10 basis points, reflecting concerns about the impact of potential trade wars on future growth. The dollar weakened as the tariffs are not expected to take effect before April.

The producer price index for January suggested that the Fed's preferred measure of consumer inflation, the personal consumption expenditures (PCE) price index, may not be as high as previously feared. Goldman Sachs Asset Management's Lindsay Rosner described the Treasury rally as a "relief rally" in light of this data.

Prior to the report, JPMorgan Chase & Co. strategists recommended buying two-year Treasury notes. The market recovery benefited those who purchased 10-year Treasury notes in Wednesday's auction.

However, demand for the week's final coupon sale was lower than expected. The $25 billion of 30-year bonds sold at a yield of 4.748%, slightly higher than the indicated level before the bidding deadline.

Trump's executive order directing the US Trade Representative and Commerce Secretary to propose tariffs on a country-by-country basis further heightened concerns about a trade war and its potential impact on global growth.

On Wednesday, a surprising increase in consumer price growth led to a sell-off in US government bonds, prompting traders to push back expectations for a Federal Reserve interest rate cut to December from September.

However, Citigroup economists predict that the PCE price index rate could decelerate to 2.5% for January when released on February 28th. They anticipate a Fed rate cut in May, though other Wall Street banks are less optimistic about easing this year.

"The market has effectively priced in inflation risk," said Brian Weinstein, head of global markets at Morgan Stanley Investment Management. "Investors are now shifting their focus to the potential impact of tariffs on economic growth."