Morgan Stanley's latest report highlights the potential volatility in U.S. Treasury yields as the U.S. plans to impose new tariffs on imports from Mexico, Canada, and China on February 3, 2025. The strategists anticipate that these tariffs could tighten financial conditions, leading to a "flight-to-quality" that may reverse any initial rise in Treasury yields. "Without fiscal support to counter tariffs, we expect financial conditions to tighten," the report states. The analysts suggest that investors should consider adding more U.S. Treasury duration to their portfolios if yields rise, particularly at the 5-year key rate duration point. They also caution against yield curve steepeners, as tighter financial conditions could increase the risk of curve flattening. The report underscores the complex interplay between tariffs, inflation expectations, and Federal Reserve policy, noting that "if the Fed chooses not to act, the outlet may need to take a different form: lower longer-term Treasury yields."