TREASURIES-US yields climb as Supreme Court strikes down Trump tariffs

By Karen Brettell

NEW YORK, Feb 20 (Reuters) - U.S. Treasury yields rose on Friday after the U.S. Supreme Court struck down President Donald Trump's sweeping tariffs that he pursued under a law meant for use in national emergencies, leading to uncertainty over future federal government revenues.

The justices, in a 6-3 ruling authored by conservative Chief Justice John Roberts, upheld a lower court's decision that the Republican president's use of this 1977 law exceeded his authority.

The yield on benchmark U.S. 10-year notes US10YT=RR rose 1.1 basis points to 4.086%, from 4.075% late on Thursday.

“The big question for everyone is what exactly happens to refunds and whether this means the government has to refund the tariff revenue and how quickly that happens,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.

Trump has said that he will implement tariffs using other methods if the current ones are struck down.

“I do think that will help limit the market's response, because what matters for the fixed income market is forward collections of tariffs, even if there is a one-time refund that has to occur because of the decision,” Goldberg said.

The 2-year note US2YT=RR yield, which typically moves in step with Fed interest rate expectations, was flat at 3.47%. The yield curve between two- and 10-year notes US2US10=TWEB steepened by one basis point to 61 basis points.

DATA IMPACT

Yields also rose after data earlier on Friday showed that underlying U.S. inflation increased more than expected in December, boosting expectations that the Federal Reserve will keep interest rates on hold for the next several months.

Both the headline and core personal consumption expenditures price index rose by 0.4% during the month, above economists' expectations of a 0.3% increase in each index.

Separately, U.S. economic growth slowed more than expected in the fourth quarter amid disruptions from last year's government shutdown and a moderation in consumer spending.

Fed policymakers are balancing concerns about still sticky price pressures against some indications of a weakening labor market.

Minutes from the Fed’s January 27-28 meeting released on Wednesday were more hawkish than expected, with "several" policymakers open to rate hikes if inflation remains elevated.