TREASURIES-US yields rise as tariffs, inflation in focus

By Karen Brettell

July 11 (Reuters) - U.S. Treasury yields rose on Friday as investors focused on next week’s consumer price inflation report that may show that price growth accelerated in June, with the Federal Reserve expected to keep interest rates on hold as it waits to see the impact of tariffs on price pressures.

The European Union on Friday waited to receive a letter from U.S. President Donald Trump outlining planned duties on his largest trade and investment partner after a broadening of his tariff war in recent days.

Yields rose overnight after Trump said the U.S. would impose a 35% tariff on Canadian imports next month, said Tom di Galoma, managing director at Mischler Financial Group. “Then we've been selling off and steepening a bit this morning.”

The Consumer Price Index on Tuesday will show whether tariffs already put in place are leading to higher price pressures. Fed Chair Jerome Powell has said he expects inflation to rise this summer.

“The CPI data from next week will be front and center,” said Jim Barnes, director of fixed income at Bryn Mawr Trust. “The market's really not anticipating a move come July from the Fed and so from the market's perspective they'll be looking at the June, July, and August CPI data.”

“We have had a trend of somewhat benign inflationary data and if it maintains that, I think the market would view that as a positive. If you start to see that reverse out a little bit, that becomes somewhat problematic because is that the beginning of a new upward trend?” Barnes said.

Fed funds futures traders are pricing in 50 basis points of cuts by year-end, with the first rate reduction expected at the Fed’s September 16-17 meeting.

The yield on benchmark U.S. 10-year notes US10YT=RR was last up 4.9 basis points on the day at 4.395%. Interest rate-sensitive two-year note yields US2YT=RR rose 2.5 basis points to 3.893%.

The yield curve between two- and 10-year notes US2US10=TWEB steepened by around two basis points to 50 basis points.

Traders pared expectations on how many times the U.S. central bank will cut rates this year after data last week showed employers added more jobs than anticipated in June.

Trump has criticized Powell and said he is being too slow to cut rates.

The White House on Thursday launched a new attack on the Fed Chair, with a top Trump administration official saying Powell had "grossly mismanaged" the central bank, chastising him for running a deficit and for extensive cost overruns for building renovations.