US yields rise as investors brace for volatility

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NEW YORK- US Treasury yields were modestly higher in quiet trading on Wednesday, with no clear direction, as investors grew more cautious and awaited more announcements from the new administration about policies on tariffs, immigration and tax cuts.

US President Donald Trump on Tuesday vowed to hit the European Union with tariffs and said his administration was discussing a 10 percent punitive duty on Chinese imports because fentanyl is being sent from China to the US via Mexico and Canada. The proposed 10 percent tariffs on Chinese goods, however, were far lower than the 60 percent duty Trump promised during his campaign.

On Monday, Trump said he was thinking of imposing 25 percent tariffs on imports from Canada and Mexico from Feb. 1.

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The tariff threats have left the bond market in limbo and traders increasingly puzzled by the delay in action. Market participants overall were hesitant to make big bets unless Trump makes more definitive policies.

Andy Wells, chief investment officer of investment management firm SanJac Alpha LP in Houston, said he thought the trend higher in Treasury yields will continue.

“It makes complete sense considering inflation is persisting. We’re looking at 3 percent inflation instead of 2 percent and we don’t think the Fed (Federal Reserve) will cut rates this year.”

“There would be a lot of volatility in the first half,” he added. “There would be a lot of whippiness in the yield curve and that means a trend upward in rates.”

In afternoon trading, the benchmark Treasury 10-year yield was up 2.7 basis points (bps) at 4.601 percent Since hitting a more than one-year high of 4.809 percent in mid-January, the 10-year yield has declined more than 20 bps.

US 30-year yields, meanwhile, were up 1.4 bps at 4.817 percent

On the front end, the two-year yield, which is typically tied to the Fed policy outlook, edged higher by 1.2 bps at 4.293 percent

Byron Anderson, head of fixed income at Laffer Tengler Investments in Scottsdale, Arizona, echoed the comments by SanJac’s Wells on inflation continuing to trend higher.

He cited Trump’s aggressive stance on immigration as a potential headwind for the Federal Reserve’s goal of bringing inflation down to the 2 percent average.

Trump on Monday kicked off his sweeping immigration crackdown, tasking the US military with aiding border security, issuing a broad ban on asylum and taking steps to restrict citizenship for children born on US soil.

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