July 2, 2019 / 7:09 PM / 8 months ago

TREASURIES-U.S. yields fall on growth jitters, U.K. bond rally

    * BOE's Carney remarks send UK yields to 2-1/2-year lows
    * Investors most upbeat on Treasuries since late May -survey

 (Updates to late U.S. market action, adds quote)
    By Richard Leong
    NEW YORK, July 2 (Reuters) - U.S. Treasury prices rose on
Tuesday, driving 10-year yields below 2%, on renewed safe-haven
demand due to anxiety about slowing global economic growth and
reduced optimism about the restart on U.S.-China trade talks.
    U.S. yields were also pressured by a drop in British yields
to 2-1/2-year lows after remarks by Bank of England Governor
Mark Carney on the risks from Brexit and trade conflicts
prompted speculation the BOE may lower interest rates in the
next 12 months.
    At the G20 summit in Japan last weekend, Washington and
Beijing agreed to restart trade talks after U.S. President
Donald Trump offered concessions, including no new tariffs and
an easing of restrictions on tech company Huawei, while China
approved making unspecified new purchases of U.S. farm products.

    Even so, traders and investors remain cautious about a trade
deal between the world's two biggest economies due to the lack
of details about the resumption of talks.
    "We're headed in a very good direction," White House trade
adviser Peter Navarro said in an interview with CNBC television.
"It's complicated, as the president said, correctly, this will
take time and we want to get it right. So let's get it right."

    Traders and investors have now shifted their focus to a
spate of weaker-than-expected manufacturing data around the
world, which may push the U.S. Federal Reserve and other major
central banks to consider easing monetary policies, analysts
    "In general, the initial reactions post-G20 has faded a
bit," said Jonathan Cohn, interest rate strategist at Credit
Suisse. "We are seeing weakness in global PMIs."
    The softening in manufacturing activity around the world
stemmed largely from the trade conflict between the United
States and its trading partners. 
    The cloudy economy outlook has underpinned the appeal of
low-risk U.S. government bonds.
    Bond investors were the most bullish about owning U.S.
longer-dated government debt since May 28, a JPMorgan survey
showed on Tuesday.
    In late U.S. trading, benchmark 10-year U.S. Treasury note
yields were down 5.70 basis points at 1.976%. They
retested the 1.974% reached on June 20, which was their lowest
level since November 2016.
    The drop in U.S. yields accelerated with the rally in U.K.
gilts in response to the comments by Carney, who suggested the
U.K. economy may need more help to deal with a downturn. British
10-year yields shed 13 basis points to 0.724%, the
lowest level since October 2016.
    "The BOE is one of the last major central banks throwing in
the towel that it has to ease," said Wen Lu, U.S. rates
strategist at TD Securities.
    The derivatives market implied traders see an even chance
the BOE will lower rates at year-end, while U.S. rates futures
signaled that traders fully expect the Fed to lower borrowing
costs by at least a quarter point at its next policy meeting, at
the end of July.
    The U.S. bond market will close early, at 2 p.m. EDT (1800
GMT), on Wednesday, ahead of the U.S. July Fourth holiday on
   Tuesday, July 2, at 1450 EDT (1850 GMT):
 US T BONDS SEP9               156-4/32     1-4/32     
 10YR TNotes SEP9              128-36/256   0-116/256  
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             2.1575       2.2056     0.006
 Six-month bills               2.03         2.0796     -0.015
 Two-year note                 99-186/256   1.7653     -0.022
 Three-year note               100-28/256   1.7117     -0.032
 Five-year note                100-4/256    1.7467     -0.049
 Seven-year note               100-44/256   1.8487     -0.055
 10-year note                  103-144/256  1.9757     -0.057
 30-year bond                  107-184/256  2.5063     -0.051
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap         4.00        -1.50     
 U.S. 3-year dollar swap         2.50        -1.00     
 U.S. 5-year dollar swap        -1.00        -0.75     
 U.S. 10-year dollar swap       -4.50        -0.25     
 U.S. 30-year dollar swap      -32.00        -0.25     
 (Reporting by Richard Leong; Editing by Richard Chang and
Leslie Adler)
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