The yield on the 10-year US Treasury note fell to below the 4.6% threshold on Tuesday, extending the decline from the over one-year high of 4.8% on January 14th, as markets assessed the outlook of the US economic backdrop following a batch of executive orders from President Trump. The US President signaled that tariffs should be imposed on Canada and Mexico starting February, but refrained from threatening trade restrictions against China. Consequently, this limited the risks that higher costs for key manufacturing inputs would underpin stubborn inflation for the rest of the year, forcing the Fed to remain hawkish. The move was consistent with earlier reports that Trump would convene with his team and not alter trade policy in his first day in office, resulting in bets that the new Presidential administration may be more cautious in passing tariffs than suggested by its aggressive campaign. The market has priced one rate cut by the Fed this year, expected to be delivered in Q3.
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