TREASURIES-US bonds rally as investors reassess risks after tariff-driven selloff

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US Treasury investors consolidating positions

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Tariff outcome priced in, including Trump's subsequent action

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US 2/10 yield curve hits flattest level since December 10

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US rate futures still see two rate cuts this year

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 23 (Reuters) - U.S. Treasuries rose on Monday as investors consolidated positions following a selloff in the previous session after the Supreme Court rejected President Donald ?Trump's sweeping use of emergency powers to impose tariffs.

U.S. government bonds had ?tumbled on Friday, with market participants moving away from Treasuries on concerns that refunding tariff revenue to businesses could widen the fiscal deficit and force the Treasury to increase ?issuance of debt.

Friday's selling of Treasuries pushed two-year yields to their largest weekly increase in 2-1/2 months. The benchmark 10-year ?yield, on the other hand, logged their biggest weekly rise in more than a month.

On ?Monday, that selloff has reversed ?as investors grabbed Treasuries, shunning risk overall, given renewed uncertainty on the administration's trade policy.

"There's still some digestion of everything that happened last Friday. So what's happening today ?is not so much pricing in anything new from Friday, but just ?more consolidation until maybe the next big data report," said Will Compernolle, macro strategist at FHN Financial in Chicago.

"A lot of these tariff implications were already priced in. Most people were expecting the tariffs ?to be overturned ... and they were also expecting that the President ?would try ?to implement them through other legal channels."

The Trump administration has not provided tariffs 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 International Emergency Economic ?Powers Act stood at more than $175 billion.

Trump said on Saturday he would raise a temporary tariff from 10% to ?15% on U.S. imports from all countries, the maximum level allowed under the law.

In late morning trade, U.S. 10-year yields fell 3.7 basis points (bps) to 4.048%, while U.S. 30-year yields were down 2.4 bps at 4.701%.

On the front end of the curve, the two-year yield, which reflects interest rate expectations, was down 1.5 bps at 3.468% .

U.S. Treasuries also caught a bid in the midst ?of U.S.-Iran tensions, ?analysts said.

The U.S. has built up one of its biggest military deployments in the Middle ?East, with Trump warning on Thursday that "really bad things will happen" if no deal is reached to solve a longstanding dispute over ?Tehran's nuclear program. Iran has threatened to strike U.S. bases in the region if it is attacked.

In other parts of the bond market, the yield curve flattened on Monday in the wake of the Supreme Court ruling and Trump's tariff plan to impose 15% tariffs on all global imports into the United States.

The spread between two-year and 10-year yields narrowed to 53.60 bps, the smallest gap since December 10. It was last at 58.4 bps, compared with 60.3 bps late on Friday, flattening for nine straight sessions.

The curve showed a bull-flattening move, with long-term rates falling ?faster than short-term yields, a pattern that typically signals flight-to-quality trades.

U.S. rate futures on Monday priced in about 56 bps of easing this year or roughly two rate cuts of 25 bps each. That was roughly steady from last Friday.

Treasury yields, meanwhile, ?modestly extended their decline after data showed U.S. factory orders ?fell 0.7% in December, a deeper contraction than the 0.6% slide that Wall Street economists ?expected. (Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski)