TREASURIES-US yields tumble as China retaliation adds to recession worries

SINGAPORE, April 4 (Reuters) - U.S. Treasury yields fell sharply on Friday after China retaliated against U.S. President Donald Trump's larger-than-expected wall of tariffs with a slew of its own, ratcheting up a global trade dispute and stoking recession fears.

Traders have also ramped up bets of more Federal Reserve rate cuts.

Investors flocked to the safety of bonds globally after Trump revealed on Wednesday his long-anticipated tariffs plan, which included a 10% minimum tariff on most goods imported into the country, with much higher duties on dozens of countries.

That flight to safety sped up after China on Friday announced additional tariffs and restrictions against U.S. goods as a countermeasure to sweeping tariffs imposed by Trump.

The move sent the benchmark 10-year U.S. Treasury yield US10YT=RR sinking to a six-month trough of 3.8750% in the European session. It was last down 17 bps at 3.8842%.

Bond yields move inversely to prices.

The two-year yield US2YT=RR tumbled to its lowest since September 2022, and was 20 bps lower at 3.5246%. The five-year yield US5YT=RR hit a six-month trough of 3.5510%.

RECESSION FEARS

"No doubt, the probability of recession has risen," said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income.

"In the event of a downturn, credit spreads may widen, but bond returns will be boosted by declining Treasury yields."

Reflecting the heightened worries of a global recession, particularly in the U.S., expectations of more aggressive Fed rate cuts this year have risen, with traders now pricing in more than 100 bps worth of easing by December 0#USDIRPR.

Following Wednesday's tariff announcements, Nomura revised its forecast and expects the Fed to deliver one rate cut in December, compared with none previously.

Meanwhile, J.P. Morgan has raised the probability of a recession in the global economy to 60% from 40% by the year-end.