June 27, 2018 / 6:24 PM / 20 days ago

Yields fall as U.S.-China trade war concerns persist

NEW YORK (Reuters) - U.S. Treasury yields fell to four-week lows on Wednesday on concerns that trade wars will harm economic growth, even after U.S. President Donald Trump indicated that he would not impose restrictions on Chinese investments in U.S. technology firms.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 25, 2018. REUTERS/Brendan McDermid

Trump said he will use a strengthened national security review panel process to deal with potential threats from Chinese acquisition of American technologies, instead of imposing China-specific restrictions.

“There were some headlines suggesting that Trump would ease up on some of his demands, that got people a little bit encouraged,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

However, “for the most part the specter of trade wars is still really weighing on risk here and that’s what’s keeping Treasuries better bid,” Goldberg said.

Benchmark 10-year notes US10YT=RR gained 13/32 in price on the day to yield 2.833 percent, the lowest since May 31 and down from 2.880 percent late on Tuesday.

The yield curve between two-year and 10-year notes US2US10=TWEB flattened to 32 basis points, the lowest level since 2007.

Bonds were also in demand by portfolio managers rebalancing for month- and quarter-end.

A row over migration policy in Germany’s coalition government additionally boosted demand for safe-haven debt, raising concerns that the euro zone’s biggest economy could be headed for snap elections.

“There is tremendous uncertainty surrounding trade tariffs, emerging markets fallout, and whether Europe can hold it together regarding Merkel’s legacy which is resulting in significant bond flows back into U.S. Treasuries,” said Tom di Galoma, a managing director at Seaport Global Holdings in New York.

The bid for bonds helped the Treasury Department sell $36 billion in five-year notes to strong demand, the second sale of $100 billion in short- and intermediate-dated debt this week.

The auction had the higher bid-to-cover ratio in 10-months, at 2.55 times.

The Treasury sold $34 billion in two-year notes to solid demand on Tuesday. It will also sell $30 billion in seven-year notes on Thursday.

Editing by Susan Thomas; Editing by Lisa Shumaker

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