June 25, 2018 / 1:33 PM / 8 months ago

TREASURIES-Long-dated notes gain on trade war, Europe concerns

* Yield curve flattest since 2007

* Treasury to sell $100 bln coupon-bearing supply this week

By Karen Brettell

NEW YORK, June 25 (Reuters) - The U.S. Treasury yield curve flattened to its lowest level in over 10 years on Monday as concerns about trade wars and divisions within the euro zone boosted demand for longer-dated safe haven debt.

The yield curve between 2-year and 10-year notes flattened to 33 basis points, the lowest level since 2007.

The U.S. Treasury Department is drafting curbs that would block firms with at least 25 percent Chinese ownership from buying some U.S. companies, adding to concerns about trade wars hurting the economy.

“Trade wars typically have a negative impact on the markets. Markets don’t like uncertainty,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

The proposal would limit Chinese ownership of U.S. companies with “industrially significant technology.” A government official briefed on the matter emphasized that the Chinese ownership threshold may change before the restrictions are announced on Friday.

Italian bonds also sold off on Monday and safe-haven German Bunds were in demand as a debate over migration threatened to widen divisions within the euro zone and undermine German Chancellor Angela Merkel’s authority.

While the migration issue itself is not a primary concern for markets, the effect it could have on euro zone integration and the potentially damaging rift it has provoked within the government in Berlin are worrying investors, analysts said.

Benchmark U.S. 10-year notes gained 2/32 in price to yield 2.893 percent, down from 2.900 percent late on Friday.

Demand for short and intermediate-dated notes will be tested this week when the Treasury Department sells $100 billion in new coupon-bearing supply.

Shorter-dated notes are the most sensitive to interest rate increases.

Fed policymakers earlier this month said two additional rate hikes are expected by the end of this year, compared with one previously.

This week’s supply will include $34 billion in two-year notes on Tuesday, $36 billion in five-year notes on Wednesday and $30 billion in seven-year notes on Thursday. (Editing by David Gregorio) )

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