July 2, 2018 / 2:38 PM / 17 days ago

TREASURIES-Trade worries keep U.S. yield curve near flattest level since 2007

    * Anxiety about German government adds safety bids for bonds
    * U.S. manufacturing activity unexpectedly rises -ISM
    * U.S. Treasuries post gain in Q2, pare year-to-date loss

    By Richard Leong
    NEW YORK, July 2 (Reuters) - The U.S. yield curve held near
its flattest level in over a decade on Monday as investors
preferred longer-dated U.S. government debt over short-dated
issues on worries that a global trade war would slow inflation
and business activity worldwide.
    Anxiety about the viability of German Chancellor Angela
Merkel's coalition government added safe-haven demand for U.S.
and German government bonds, analysts said.
    At 10:19 a.m. (1419 GMT), the yield on 10-year Treasury
notes was little changed at 2.853 percent, while the
10-year German Bund yield was unchanged at 0.309
percent, Reuters data showed.
    The five-year to 30-year part of the U.S. yield curve
 stood at 24.4 basis points, a tad flatter than
late on Friday. It hit 22.8 basis points on Friday, which was
the flattest level since July 2007.
    "The path of least resistance is further flattening," said
Mike Lorizio, head of Treasuries trading at Manulife Asset
Management in Boston. "There are more concerns about growth in
the second half given (President Donald) Trump's trade
policies."
    The European Union has warned the United States that
imposing import tariffs on cars and car parts would harm the
U.S. automotive industry and likely lead to counter-measures on
$294 billion of U.S. exports.
    Escalating trade tensions are already being felt in Europe
as a gauge of regional factory activity fell to an 18-month low
in June.
    In addition to the trade row, European politicians are
scrambling to address migrant policy. On Sunday, German Interior
Minister Horst Seehofer offered to quit and his conservative
Christian Social Union party threatened to impose new border
controls, casting a shadow over Merkel's coalition.
    Growing trade frictions, however, have not yet hurt domestic
manufacturers. U.S. factory activity unexpectedly beat analyst
expectations in June, according to the Institute for Supply
Management.
    Safe-haven demand tied to trade worries, together with
signals from the European Central Bank to maintain an easy
policy stance, produced positive total return of 0.10 percent
for Treasuries in the second quarter. That pared their
year-to-date loss to 1.08 percent, according to an index
compiled by Bloomberg and Barclays.
July 2 Monday 10:20AM New York / 1420 GMT
                               Price                  
 US T BONDS SEP8               145-1/32     1/32      
 10YR TNotes SEP8              120-44/256   -1/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.89         1.9249    0.005
 Six-month bills               2.07         2.1203    0.010
 Two-year note                 99-236/256   2.5404    0.012
 Three-year note               99-252/256   2.6303    0.011
 Five-year note                99-122/256   2.7379    0.007
 Seven-year note               99-144/256   2.8194    0.002
 10-year note                  100-48/256   2.8528    0.002
 30-year bond                  102-204/256  2.9828    -0.002
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       31.10        -1.60     
 30-year vs 5-year yield       24.40        -0.55     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        25.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap        22.75        -0.75    
 spread                                               
 U.S. 5-year dollar swap        15.00         0.00    
 spread                                               
 U.S. 10-year dollar swap        7.25         0.00    
 spread                                               
 U.S. 30-year dollar swap       -5.75         0.50    
 spread                                               
 
    

 (Reporting by Richard Leong
Editing by Paul Simao)
  
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