TREASURIES-US yields dip after Trump does not impose tariffs on first day

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US 2-year, 10-year yields slip but tariff threat lingers

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US rate futures price in 44 bps of easing in 2025

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Analysts expect more to come

By Ankur Banerjee

SINGAPORE, Jan 21 (Reuters) - U.S. Treasury yields slipped on Tuesday after President Donald Trump did not impose tariffs on his first day in office, suggesting a gradual approach to policies and providing relief to investors worried about inflation resurfacing.

In his inauguration speech, Trump declared immigration and energy emergencies, but only briefly mentioned tariffs and issued a following memo that just directed agencies to investigate and remedy persistent trade deficits.

The lack of firm details on tariffs led to a relief rally in most currencies, with stock futures also soaring but new comments from Trump unnerved the markets.

Trump said he was thinking of imposing 25% tariffs on imports from Canada and Mexico. He said the action could come on Feb. 1.

Analysts cautioned the relief rally might be temporary and even a measured approach on tariffs could still stoke inflation worries and keep U.S. rates higher for longer.

The yield on the benchmark U.S. 10-year Treasury note fell 6.7 basis points to 4.544%. The yield on the 30-year bond fell 4.8 basis points to 4.797%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 4.9 basis points to 4.223%.

"If you look at what Trump said in his speech, it looks like he's quite firm on tariffs. I think there's more to come there," said Zachary Griffiths, senior investment grade strategist at CreditSights.

"If you have a more gradual, but still large tariffs in terms of percentage on a broad swath of countries... that could be more challenging from an inflation perspective for the Fed and could even result in policy being tighter for longer," Griffiths added.

The Federal Reserve last month jolted the market by projecting just two rate cuts in 2025, down from four predicted previously, due to worries over inflation and the Trump administration's election pledges.

Analysts have said that Trump's policies on immigration, tax and tariffs will likely boost growth but also be inflationary. The Fed is expected to hold rates steady this month but keep a wary eye on inflation.

The lack of concrete tariff measures turned investors a little more dovish on the U.S. rate outlook. Futures added about 4 basis points of extra Fed easing this year, putting rates at 3.90% by December.

The probability of a quarter-point cut as early as May edged up to around 50%, from 31% a week earlier.

"From the move in the dollar, UST and equities you can see that a pragmatic approach will be welcome news to markets across the board," said James Athey, fixed income portfolio manager at Marlborough.

"Of course assuming that today's rhetoric aligns with next week and next month is always dangerous with this President." (Reporting by Ankur Banerjee; Editing by Jamie Freed)