TREASURIES-Longer-dated US yields edge up after data amid trade policy uncertainty

By Chuck Mikolajczak

NEW YORK, March 6 (Reuters) - Longer-dated U.S. Treasury yields were higher on Thursday in choppy trading as investors poured over the latest data for signs of cracks in the economy while trying to navigate the cross-currents of changing tariff details from the Trump administration.

Weekly initial jobless claims fell by 21,000 to a seasonally adjusted 221,000, according to the Labor Department, below expectations of economists polled by Reuters of 235,000.

By contrast, global outplacement firm Challenger, Gray & Christmas earlier in the day said that planned job cuts vaulted 245% to 172,017 last month, the highest level since July 2020 when the economy was in the midst of the COVID-19 pandemic and the highest February total since the global financial crisis 16 years ago.

Uncertainty around President Donald Trump's tariff announcements and the impact on the labor market from moves spearheaded by billionaire Elon Musk to downsize the federal government have increased concerns about slowing economic growth and served to drive yields lower in recent weeks.

"We've seen a pretty good steepening in the U.S. yield curve," said Tom di Galoma, managing director at Mischler Financial. "The curve should end up being flatter, but what's going on right now is just there's just a real struggle with the tariffs and what the long-term budget outlook is for a lot of these economies."

Yields moved higher after U.S. Commerce Secretary Howard Lutnick said the recent tariff reprieve announced for automakers will likely include all products covered under the U.S.-Mexico-Canada Agreement.

Adding to the confusion surrounding tariffs, Trump said goods from Mexico covered by a North American trade pact will be exempted for a month from the previously announced 25% tariffs, but he did not mention a similar pause for Canada.

The uncertainty weighed on U.S. stocks, which sold off sharply, and pushed yields off their earlier highs. The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB rose 1.3 basis points to 4.28%.

Benchmark German Bund yields rose again after recording their biggest daily rise in more than 25 years in the prior sessions. Berlin's plans for a huge spending package led investors to expect a massive increase in German bond supply, while the European Central Bank cut interest rates by 25 basis points but suggested it may not reduce rates again next month.

Other U.S. economic data showed the trade deficit surged 34.0% to an all-time high of $131.4 billion in January from a revised $98.1 billion in December amid front-loading of imports ahead of expected tariffs, suggesting that trade could be a drag on economic growth in the first quarter.

The yield on the 30-year bond US30YT=TWEB advanced 1.7 basis points to 4.576%.

Market expectations that the Fed may have latitude for more rate cuts this year than recently thought due to a slowing economy have been growing. Traders are pricing in 72 basis points of cuts by the U.S. central bank this year, up from previous bets for less than 50 basis points of easing, according to LSEG data.

Philadelphia Federal Reserve President Patrick Harker said trouble may be brewing for a U.S. economy that is currently in good shape but showing signs of stress in the consumer sector and risks to the inflation outlook.

Fed Chair Jerome Powell is scheduled to speak on Friday.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 30.7 basis points after climbing to 35.6, its highest since January 28.

The two-year US2YT=TWEB yield, which typically moves in step with interest rate expectations, dipped 1.5 basis points to 3.971%.

The breakeven rate on five-year U.S. Treasury inflation-protected securities US5YTIP=TWEB was last at 2.566% after closing at 2.583% on Wednesday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.338%, indicating the market sees inflation averaging about 2.3% a year for the next decade.