Yields dive as Trump tariffs spark fears of recession

SINGAPORE/LONDON, April 3 (Reuters) - U.S. Treasury yields dived to multi-month lows on Thursday after U.S. President Donald Trump unleashed larger-than-expected tariffs on the world, sparking panic over the potential for recession and sending investors fleeing into safe havens.

Trump on Wednesday unveiled a 10% minimum tariff on most goods imported into the United States, with much higher duties on products from dozens of countries, sending global stocks plunging, currencies in a whirlwind and bonds surging.

The benchmark 10-year U.S. Treasury yield US10YT=RR fell as much tumbled by as much as 15.5 basis points to a more than five-month low of 4.04%, as prices rallied, and were last down 12.3 bps at 4.0719%.

The two-year Treasury yield US2YT=RR dropped to 3.815%, having slid as much as 14 bps to a six-month trough of 3.76%.

"Tailwinds are blowing very, very strongly behind Treasuries now - safe-haven flows, fears of a recession and trade war and more Fed rate cuts," said Tony Sycamore, a market analyst at IG.

"You're going to see a raft of banks now coming through and saying that the chances of a recession in the U.S. are significantly higher," Sycamore said.

Goldman Sachs recently raised the probability of a U.S. recession to 35% from 20% and said it expects more rate cuts, while J.P. Morgan's chief economist previously saw about 40% chance of a recession in the world's largest economy this year.

"In any case, before we have further clarity on what the next steps will be, markets are likely to assess how bad things can get and probably come to the conclusion that things can even deteriorate from here onwards," strategists at RBC Capital Markets said in a note.

Traders have priced in more aggressive rate cuts from the Federal Reserve, and Trump's tariffs accelerated that trend.

Fed funds futures now point to just over 80 bps worth of easing by December, from closer to 70 bps shortly before Trump started talking on Wednesday. 0#USDIRPR

"You can probably say June is close to a done deal now for the Fed, they aren't going to like what they see," IG's Sycamore said of a June rate cut.

Across the curve, the yield on the 30-year U.S. Treasury note US30YT=RR fell nearly 10 bps to 4.456%, while the 20-year yield US20YT=RR declined nearly 10 bps to 4.4840%.

Thursday's moves in U.S. Treasuries mirrored those of its peers globally as investors flocked to safety assets after Trump's tariff moves sparked a market rout, with bond prices from Japan to Europe clocking strong gains.

In Europe, German 10-year Bunds DE10YT=RR caught a bid, pushing yields down 7.6 bps on the day to 2.649%.

In Tokyo, the 10-year Japanese government bond (JGB) yield JP10YTN=JBTC fell more than 12 bps to 1.34%, while the five-year yield slid 9.5 bps to 0.98%. JP/