TREASURIES-US yields climb as Supreme Court strikes down Trump tariffs

(Updated in midday New York time)

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Supreme Court ruling creates uncertainty over tariff refunds

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Yields rise also due to unexpected inflation increase in December

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Fed minutes reveal openness to rate hikes if inflation persists

By Karen Brettell

NEW YORK, Feb 20 (Reuters) - U.S. Treasury yields rose on Friday after the U.S. Supreme Court struck down President Donald Trump's sweeping tariffs, leading to uncertainty over payments that ?may now be due to trading partners and future federal government revenues. The ?justices, in a 6-3 ruling authored by conservative Chief Justice John Roberts, upheld a lower court's decision that the Republican president's use of a 1977 law meant for national emergencies ?exceeded his authority.

The yield on benchmark U.S. 10-year notes rose 1.5 basis points to 4.09%, from 4.075% late on ?Thursday.

"The big question for everyone is what exactly happens to refunds and whether this means ?the government has to refund ?the tariff revenue and how quickly that happens," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.

Trump's April 2 "Liberation Day" tariffs included a ?baseline tariff of 10% on all imports to the United States and ?specific additional 15% to 50% tariffs on most countries, many of which were renegotiated and lowered subsequently.

He also imposed product-specific tariffs, such as a 50% rate on steel and aluminum and 25% on auto ?parts.

Thousands of companies around the world have filed lawsuits challenging those ?sweeping tariffs and

sought ?refunds

on duties paid.

"The negative of it is what happens with the money that's already been paid. And the fact that this administration has counted on tariffs as a budget balancing technique is going to create some chaos ?and require a rethinking on the part of the administration," said Rick Meckler, partner at Cherry Lane Investments in New ?Vernon, New Jersey.

Trump's administration has not provided tariff collection data since December 14. But Penn-Wharton Budget Model economists estimated on Friday that the amount collected in Trump's tariffs based on the emergency economic powers act stood at more than $175 billion.

Trump has said that he will implement tariffs using other methods if the current ones are struck down.

"I do think that will help limit the ?market's response, because ?what matters for the fixed-income market is forward collections of tariffs, even if there is ?a one-time refund that has to occur because of the decision," Goldberg said. The 2-year note yield, which typically moves in step with ?Fed interest rate expectations, rose 0.4 basis points to 3.474%. The yield curve between two- and 10-year notes steepened by around one basis point to 61 basis points.

DATA IMPACT

Yields also rose after data earlier on Friday showed that underlying U.S. inflation increased more than expected in December, boosting expectations that the Federal Reserve will keep interest rates on hold for the next several months. Both the headline and core personal consumption expenditures price index rose by 0.4% during the month, above economists' expectations of a 0.3% increase in each index. Separately, U.S. economic growth slowed more than ?expected in the fourth quarter amid disruptions from last year's government shutdown and a moderation in consumer spending.

Fed policymakers are balancing concerns about still sticky price pressures against some indications of a weakening labor market. Minutes from the Fed's January 27-28 meeting released on Wednesday were ?more hawkish than expected, with "several" policymakers open to rate hikes ?if inflation remains elevated.

(Reporting by Karen Brettell; additional reporting by Vidya Ranganathan and Caroline ?Valetkevitch; Editing by Andrei Khalip and Andrea Ricci )