June 25, 2018 / 6:24 PM / 2 months ago

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

 (Adds quotes, updates prices)
    * 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.
    Trade fears and tensions in Europe have raised concerns that
divisions could slow global growth and potentially impede the
Federal Reserve from making further interest rate hikes.
    Fed Chair Jerome Powell “sees the economy as strong, his
outlook is also strong because he envisions the tax cut helping
out the economy for the next year or two,” said Lou Brien, a
market strategist at DRW Trading in Chicago.
    “However, the trade issue is something that he has not
factored in because there’s nothing in the data,” Brien added.
    Fed policymakers earlier this month said two additional rate
hikes are expected by the end of this year, compared with one
previously.             
    Trade war fears were stoked by reports that the Treasury was
drafting curbs that would block firms with at least 25 percent
Chinese ownership from buying U.S. companies with "industrially
significant technology."
    U.S. Treasury Secretary Steven Mnuchin said on Monday that
forthcoming investment restrictions from the Treasury will not
be specific to China but would apply "to all countries that are
trying to steal our technology."             
    “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.
    Benchmark U.S. 10-year notes             gained 5/32 in
price to yield 2.884 percent, down from 2.900 percent late on
Friday. The yield curve between 2-year and 10-year notes
               flattened to 33 basis points, the lowest level
since 2007.
    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.
            
    The U.S. Treasury will sell $100 billion in new
coupon-bearing supply this week, including $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 and Dan Grebler)
  
 
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