TREASURIES-Yields slide as traders price in almost five Fed cuts this year

SINGAPORE/LONDON, April 7 (Reuters) - U.S. Treasury yields dropped again on Monday, pushing the two-year yield to a multi-year low, as fears grew of a possible recession in the world's largest economy and investors bet the Federal Reserve would cut rates four or five times this year.

U.S. President Donald Trump over the weekend said foreign governments would have to pay "a lot of money" to lift sweeping tariffs and characterised the trade duties as "medicine", contributing to a further bout of selling on Monday.

European and Asian stocks plunged for a third day on Monday, along with Wall Street futures, sparking a dash towards safe-haven assets such as government bonds and the Swiss franc and Japanese yen.

The two-year U.S. Treasury yield US2YT=RR, which typically reflects near-term rate expectations, tumbled more than 20 basis points to its lowest level since September 2022 at 3.435%, as investors ramped up bets of more aggressive Fed easing this year. It was last down 16 bps at 3.518%.

The benchmark 10-year yield US10YT=RR fell to 3.873%, nearing Friday's six-month low. It was last 3 bps lower at 3.962%. Yields move inversely to prices.

Futures now point around 120 bps worth of Fed cuts by December and markets swung to imply a roughly 60% chance the U.S. central bank could ease rates in May, as policymakers seek to shore up growth in the world's largest economy. 0#USDIRPR

"We don't think the depth of U.S. cut pricing is overdone given the intensification of recession concerns," analysts at Goldman Sachs said in a note.

Yet many strategists said the Fed is in a tricky position given tariffs are likely to push up prices in the United States, meaning deep rate cuts are not guaranteed.

"Tariffs are short-term inflationary and hence cutting rates will go against Fed's mandate of price stability," said Mohit Kumar, economist at Jefferies.

"Moreover (Fed Chair Jerome) Powell doesn't know what the tariff policy would be in a couple of weeks so why respond now."

Powell on Friday said Trump's tariffs are "larger than expected" and warned of higher inflation and slower growth, although he cautioned it was still too soon to know the right response.

In a sign of concerns about long-term U.S. growth, the 30-year Treasury yield US30YT=RR fell to a four-month low of 4.326%, but was last up 2 bps.