TREASURIES-Yields inch higher on tariff exemption hopes, quarter-end trades

By Davide Barbuscia

NEW YORK, March 26 (Reuters) - U.S. Treasury yields inched higher on Wednesday as investors weighed the prospect of exemptions from Trump's wave of tariffs set to take effect next week, with quarter-end portfolio rebalancing also spurring some bond selling.

U.S. President Donald Trump indicated on Monday that not all of his threatened levies would be imposed on April 2 and some countries may get breaks, which has given some reprieve this week to investors rattled by the inflationary impact and the hit on U.S. growth expected from aggressive U.S. trade policies.

Portfolio reallocations in the last days of the quarter, when money managers, pension funds and other investors adjust their allocations to account for the quarter’s moves in stocks and bonds, could have also contributed to some of the selling pressure in Treasuries, nudging yields higher.

"That trade has started, it's not something you can do just the last day of the quarter ... you have to ease your way into it," said Tony Farren, managing director at Mischler Financial Group, talking about investors selling bonds to buy stocks.

Still, tariffs remained the dominant market force, he said, with investors eagerly awaiting clarity on Trump's full plans next week after a month of whiplash-inducing announcements of tariffs on key U.S. trade partners that have roiled markets.

"I'm hoping we get clarification on Tuesday, I'm fearful we won't," said Farren.

On the economic data front, the February reading of durable goods orders, released by the U.S. Commerce Department on Wednesday, was stronger than anticipated. At the same time, new orders for key U.S.-manufactured capital goods unexpectedly fell in February.

Wednesday's data followed the release of a Conference Board survey on Tuesday showing U.S. consumer confidence plunged to the lowest level in more than four years this month, with households fearing a recession in the future.

BofA Securities analysts said in a note on Wednesday that U.S. Treasury yields remained stuck between two opposing themes: they have adjusted lower in recent weeks to account for heightened growth concerns stemming from tariff uncertainty. At the same time, economic fundamentals have held firm, and inflation risks remain high.

Benchmark 10-year yields US10YT=RR stood at 4.348% in mid-morning trade on Wednesday, about four basis points higher than Tuesday. Two-year yields US2YT=RR, which tend to more closely reflect expectations of changes in monetary policy, were about one basis point higher at 4.015%.

Later on Wednesday, investors will need to absorb $70 billion in five-year notes, the second of three Treasury debt sales this week. A $69 billion two-year auction on Tuesday was well received by the market.