TREASURIES-US yields tumble as Trump tariffs spark safe haven flight

*

Trump's tariffs stoke recession fears, impacting global markets

*

Yields on U.S. Treasuries drop significantly amid economic concerns

*

Gauge of U.S. services sector hits nine-month low

(Updates to afternoon US trading)

By Chuck Mikolajczak

NEW YORK, April 3 (Reuters) - U.S. Treasury yields plunged on Thursday, after U.S. President Donald Trump announced larger-than-expected tariffs on a global scale, greatly stoking recession fears and sending investors scurrying into safe havens.

Trump on Wednesday revealed his long-anticipated tariffs plan, which included a 10% minimum tariff on most goods imported into the United States, with much higher duties on products from dozens of countries. Stocks around the globe plunged, currency markets were upended and bond yields plummeted.

The yield on the benchmark U.S. 10-year Treasury note tumbled 14.6 basis points to 4.049% after falling to a 4.004%, its lowest since November 25. The yield on the note was on track for its biggest daily drop since August 2.

"It's more of a shock that was not incorporated into people's forecasts for 2025," said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago.

"The consumer has been very resilient and has continued to spend, but does this change activity? If this changes their purchasing behavior in a significant way, then we could see a different economy than we've seen in the past couple of years."

Yields briefly extended declines after data from the Institute for Supply Management showed its non-manufacturing Purchasing Managers Index dropped to 50.8 last month, the lowest reading since June 2024, well short of the 53 estimate of economists polled by Reuters and the 53.5 in February.

The yield on the 30-year bond fell 6.9 basis points to 4.47% after falling to 4.431%, a fresh one-month low.

Yields have moved lower over the past few months and equities have struggled as recent data have shown a notable weakening in consumer sentiment and growing inflation expectations as investors braced for the tariff announcements.

Concerns that the tariffs could cause price pressures to increase while stunting economic growth, prompting a stagflation environment, have also grown.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 32.8 basis points.

Goldman Sachs recently raised the probability of a U.S. recession to 35% from 20% and said it expects more rate cuts, while J.P. Morgan's chief economist previously saw about a 40% chance of a recession in the world's largest economy this year.

Markets have been slowly pricing in the possibility of more rate cuts from the Federal Reserve this year, which increased after Trump's tariffs were released.

Traders are now pricing in about 84 basis points of interest rate cuts by the end of the year, LSEG data showed, although comments by some Federal Reserve officials have suggested the Fed will be deliberate in adjusting rates lower.

Expectations for a cut of at least 25 basis points at the central bank's June meeting have also increased to 80.7%, according to CME's FedWatch Tool, up from 67.3% in the prior session.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, plummeted 18.7 basis points to 3.717% after stumbling to a six-month low of 3.69%.

Federal Reserve Vice Chair Philip Jefferson said that with the economy in solid shape, tariffs already pushing upward on goods inflation, and higher-than-usual uncertainty over the outlook there is no need to hurry to make policy adjustments.

Citing high levels of uncertainty, Federal Reserve Governor Lisa

Cook said

now is the time for the central bank to watch the data before changing monetary policy.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.557%, its lowest since March 21, after closing at 2.586% on April 2.

The 10-year TIPS breakeven rate was last at 2.285%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

Thursday's moves in U.S. Treasuries were in sync with their global peers as investors flocked to assets perceived to have less risk.

In Europe, German 10-year Bunds ended down 7.4 bps on the day to 2.651%, after hitting a one-month low of 2.625%, the day before the government reached a historic spending plan.

In Tokyo, the 10-year Japanese government bond yield was down 12.4 bps to 1.345%, after hitting a five-week low of 1.325%.

(Reporting by Chuck Mikolajczak, additional reporting by Rae Wee in Singapore and Amanda Cooper in London; Editing by Bill Berkrot and Diane Craft)