by Ruth Carson and Masaki Kondo
Treasuries rallied as US President Donald Trump refrained from imposing China-specific tariffs and revoked offshore oil drilling bans in most US coastal waters, moves that calmed concern over inflation and bolstered bets for interest rate cuts from the Federal Reserve.
“It looks likely that the path of lower inflation, Fed rate cuts and a drop in Treasury yields is opening up,” Makoto Noji, chief FX and foreign bond strategist at SMBC Nikko Securities Inc., wrote in a note. That’s because Trump’s decisions to avoid announcing higher tariffs immediately and to declare an energy emergency will help ease inflation concern, he wrote.
Ten-year Treasury yields slid close to 10 basis points to 4.53% in Asia on Tuesday as cash trading resumed after a US holiday on Monday. The rally in US bonds was also supported by falling crude prices after Trump revoked offshore oil and gas leasing bans that effectively blocked drilling in most US coastal waters.
Treasuries had lost 3.1% in the final three months of 2024, the worst quarterly performance in two years, amid concern Trump’s policy of higher tariffs and tax cuts would drive up US inflation, in turn preventing the Fed from easing policy.
Investors are pricing in more policy easing from the Fed. Overnight-indexed swaps are now signaling a 70% chance of the Fed cutting the benchmark rate more than once this year, up from 46% on Friday.
“US yields could rebound if speculation of Fed policy easing gradually decreases as long as the US economy remains resilient,” Naokazu Koshimizu, a senior rates strategist at Nomura Securities Co. in Tokyo, wrote in a note. “For yields to have a sustained decline, financial conditions have to be sufficiently tighter, leading to a slowdown in the economy.”
US yields had briefly pared declines after the Trump said he planned to enact previously threatened tariffs of as much as 25% on Mexico and Canada by Feb. 1.
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