June 18, 2018 / 2:40 PM / 5 months ago

TREASURIES-Long-term yields slip as U.S.-China trade spat intensifies

    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 18 (Reuters) - U.S. long-dated Treasury
yields slid on Monday, in tandem with Wall Street shares, as
investors grew worried about an escalating trade war between
China and the United States.
    U.S. 10-year and 30-year yields fell for a third consecutive
session in generally thin volume, while those on two-year notes
were steady, underscoring the Federal Reserve's tightening
policy. 
    The Fed said after a policy meeting last week in which it
raised interest rates by 25 basis points that it expect to
tighten two more times this year.
    With the Fed out of the way, investors focused on trade
tensions.
    After U.S. President Donald Trump said he was pushing ahead
with hefty tariffs on $50 billion of Chinese imports, China said
on Friday it would respond with tariffs "of the same scale and
strength" and that any previous trade deals with Trump were
"invalid." 
    The official Xinhua news agency said China would impose 25
percent tariffs on 659 U.S. products, ranging from soybeans and
autos to seafood.
    "There's some concern about trade wars and that is having an
impact on equities and has spilled over to Treasuries," said
Justin Lederer, U.S. Treasury trader at Cantor Fitzgerald in New
York. "The concern is that there seems to be no end in sight for
this trade war."
    In mid-morning trading, U.S. 10-year yields edged down to
2.911 percent, from Friday's 2.924 percent.
    U.S. 30-year yields slipped to 3.042 percent,
compared with 3.047 late on Friday.
    On the short end of the curve, U.S. two-year yields were at
2.553 percent, unchanged from Friday.
    The yield curve, meanwhile, continued to flatten on Monday,
at least with respect to the spread between U.S. 2-year and
10-year notes. That spread narrowed to as low as 35.50 basis
points.
    A flat yield curve suggests expectations of U.S. interest
rate increases that have boosted short-dated yields.
    Some analysts believe that the yield curve is on its way to
inverting, a market move in which short-term U.S. interest rates
rise above longer-term bond yields, a scenario which has
preceded recent U.S. recessions.
    Cantor's Lederer said he thinks a probable yield curve
inversion does not necessarily presage a recession.
    "Our current cycle does not seem to suggest a recession
because recent U.S. numbers have been strong. I don't think
we're anywhere near a recession at this point," Lederer said.  
    
      June 18 Monday 10:25AM New York / 1425 GMT
                               Price                  
 US T BONDS SEP8               143-27/32    0-6/32    
 10YR TNotes SEP8              119-184/256  0-32/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9          1.9352    0.002
 Six-month bills               2.025        2.0738    0.003
 Two-year note                 99-232/256   2.5492    -0.004
 Three-year note               99-226/256   2.666     -0.014
 Five-year note                99-214/256   2.7855    -0.016
 Seven-year note               100-4/256    2.8724    -0.018
 10-year note                  99-176/256   2.9114    -0.013
 30-year bond                  101-160/256  3.0418    -0.005
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.50        -0.50    
 spread                                               
 U.S. 3-year dollar swap        22.50         0.50    
 spread                                               
 U.S. 5-year dollar swap        14.25         0.50    
 spread                                               
 U.S. 10-year dollar swap        6.25         0.25    
 spread                                               
 U.S. 30-year dollar swap       -6.75        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss)
  
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