TREASURIES-US yields sink as markets cautious amid tariff uncertainty

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

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Markets price in 39 bps of Fed easing in 2025

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Trump says he may impose tariffs on Canada, Mexico next month

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US 2/10 yield curve flattens, hits narrowest gap since late December

(Adds new comment, NEW YORK dateline, byline, updates prices)

By Gertrude Chavez-Dreyfuss and Ankur Banerjee

NEW YORK/SINGAPORE, Jan 21 (Reuters) - U.S. Treasury yields on most maturities fell on Tuesday after President Donald Trump refrained from imposing tariffs on his first day in office, although he said imports from Canada and Mexico may get some duties on Feb. 1.

U.S. yields, from two-year notes to 30-year bonds, slid to their lowest since early January, continuing a trend that started last week with tepid consumer prices data for December.

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

That stoked expectations that the new administration will adopt a gradual approach to tariffs, sparking a short-lived relief rally in most non-U.S. dollar currencies. Stock futures also soared before fresh comments from Trump jolted the markets.

Trump said later on Monday he was thinking about imposing 25% tariffs on imports from Canada and Mexico as soon as Feb. 1, without offering details. The president also said he wanted to reverse the U.S. trade deficit with the European Union, either with tariffs or more energy exports.

"Trump overall was very light on tariffs and that's why Treasury yields are lower. A lot of the fast money accounts have been short Treasuries and so we might see a reversal this week to lower yields," said Tom di Galoma, managing director & head of fixed income trading, at Curvature Securities in Park City, Utah.

"He's being very careful on the tariffs and he doesn't want to upset the markets, but we all know what he's going to do at some point. Trump just didn't do it on day one."

Market ructions in the wake of Trump's comments were mainly felt in currencies.

"Our view remains that tariffs are a negotiating tool, and we should see more headlines over the coming days," said Mohit Kumar, chief economist, Europe, at Jefferies. "Eventually, it is likely that Trump refrains from imposing the intended 25% tariffs."

In mid-morning trading, the yield on the benchmark U.S. 10-year Treasury note sagged 4.9 basis points to 4.562%, after touching a more than two-week low of 4.53%. The yield on the 30-year bond fell 6.3 bps to 4.782%, also hitting a two-week trough of 4.776%.

On the short end of the curve, the two-year U.S. Treasury yield, which typically moves in step with interest-rate expectations, was little changed at 4.272%. Earlier, the yield touched its lowest since Jan. 2 at 4.219%.

The U.S. Treasury yield curve on Tuesday, meanwhile, reduced its steepness and showed what traders call a "bull flattening," where long-term interest rates are falling faster than shorter-dated ones. The gap between two-year and 10-year Treasury yields narrowed to 29 bps, the flattest since late December, and down from 33.8 bps late on Friday.

The curve reflects lower inflation expectations, with the market viewing a gradual approach on tariffs as reducing price pressures. A bull flattener typically precedes the Fed lowering short-term interest rates.

Concerns over price pressures also eased modestly amid weakening oil prices after Trump announced drilling plans to boost U.S. crude oil and gas production. That also weighed on Treasury yields.

Brent crude futures were last down 1.4%, at $79.04 per barrel, while U.S. West Texas Intermediate crude futures dropped 2.2% at $76.17.

The Federal Reserve last month shocked the market by projecting just two rate cuts in 2025, down from four predicted previously, due to worries over inflation and uncertainties surrounding 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. Markets price in about 39 basis points of easing this year, roughly unchanged from Friday's estimates, according to LSEG calculations (Reporting by Gertrude Chavez-Dreyfuss in New York, Ankur Banerjee in Singapore and Greta Rosen Fondahn in Gdansk; Editing by Jamie Freed, Christopher Cushing, Shri Navaratnam, Christina Fincher and Rod Nickel)