Supreme Court’s decision - The US Supreme Court ruled that that Trump’s use of IEEPA tariffs represents an overreach of authority. Tariffs under Section 301 and 232 remain. Trump has quickly reacted, indicating that he would impose 15% tariffs via Section 122. These tariffs can remain in place for 150 days but would require Congressional approval thereafter. The key takeaway is that there are limits to what Trump can do on tariffs. The alternative paths generally require procedural actions and would not be as easy to implement.
While USTs sold off, yields pulled back subsequently. The net increase across the curve is about 2bps. There are concerns about the US’s fiscal situation. Between USD 170bn in refunds and the loss of revenues (at least until new tariffs come in place), the US’s fiscal situation has deteriorated at the margin. Moreover, there is a net decrease in US import tariffs that should represent a boost to the private sector. At the margin, this boost yields across the curve.
Look beyond weak headline GDP numbers – 4Q advance headline GDP expanded by just 1.4% QoQ saar (consensus : 2.8%). Most of this has to do with the government shutdown during that period, knocking off an estimated 1-pct-pt off growth. Underlying growth is firm with personal consumption and private investment growth at 2.4% and 3.8% respectively.
US-Iran tensions and the prospect of conflict in the Strait of Hormuz - The buildup of US military in the region makes for a tense period as negotiations continue. If a military conflict occurs, there are two issues that investors need to consider from a rates perspective.
First, oil supplies will be curtailed for some time. Some of this is already filtering through. WTI prices have climbed above USD 70/bbl and 2Y breakevens have risen by 40bps to 2.7% since the start of the year. Longer-term breakevens are less sensitive and have only moved modestly higher. On balance, this placed some flattening on the nominal yield curve. 
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