July 11, 2018 / 2:10 PM / 2 months ago

TREASURIES-U.S. bond prices rise, curve flattens as U.S.-China trade war escalates

    * U.S. releases list of Chinese goods for tariffs
    * Stocks drop in risk-off open, Beijing responds
    * 10-year auction scheduled for later in session

    By James Thorne
    NEW YORK, July 11 (Reuters) - U.S. Treasury prices gained
and the yield curve flattened further on Wednesday after the
United States threatened tariffs on $200 billion worth of
imports from China.
    Domestic stocks opened lower, halting a four-day run of
gains, after the White House warning and China's threats that it
would hit back.
    "The big story is the new round of tariffs and more
importantly the real impact for the economy," said Ian Lyngen,
head of U.S. interest rates strategy at BMO Capital Markets in
New York.
    Last week, Washington imposed 25 percent tariffs on $34
billion of Chinese imports, and Beijing responded immediately
with matching tariffs on the same amount of U.S. exports to
China.
    U.S. producer price index data showed a 0.3 percent rise for
final demand excluding food and energy in June, compared with
0.3 percent in May.
    A Treasury auction for $22 billion in 10-year notes is
scheduled for 1:00 p.m. EDT (1700 GMT), following weak demand on
Tuesday for the sale of 3-year notes. An additional $14 billion
in 30-year bonds will be offered on Thursday.
    “Once we get past the auctions and start to assess what’s
going on with the risks to the real economy, I think the curve
will continue to grind flatter," Lyngen said.
    U.S. benchmark 10-year yields were 2.4 basis
points lower at 2.849 percent, and 3-year bonds were
quoted at 2.949 percent at 9:34 a.m. EDT (1334 GMT).
    The yield curve between 5-year and 30-year Treasuries dipped
below 19 basis points for the first time in 11 years. The spread
between 2-year and 10-year notes was at 26.50 basis points.
    CPI data will be released on Thursday at 8:30 a.m. EDT (1230
GMT). Economists polled by Reuters expect year-over-year core
inflation to be 2.3 percent for June, compared with 2.2 percent
in May. 
    
  July 11 Wednesday 9:34AM New York / 1334 GMT
                               Price                  
 US T BONDS SEP8               145-12/32    12/32     
 10YR TNotes SEP8              120-48/256   6/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9375       1.9741    -0.003
 Six-month bills               2.0875       2.1391    -0.010
 Two-year note                 99-216/256   2.5817    -0.012
 Three-year note               99-216/256   2.6796    -0.013
 Five-year note                99-108/256   2.7502    -0.022
 Seven-year note               99-148/256   2.817     -0.025
 10-year note                  100-56/256   2.8491    -0.024
 30-year bond                  103-120/256  2.9493    -0.023
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       26.50        -1.10     
 30-year vs 5-year yield       19.90        -0.95     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        23.75        -1.00    
 spread                                               
 U.S. 3-year dollar swap        19.75        -2.00    
 spread                                               
 U.S. 5-year dollar swap        14.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap        7.25         0.00    
 spread                                               
 U.S. 30-year dollar swap       -3.25         0.25    
 spread                                               
 

    
 (Reporting by James Thorne
Editing by Susan Thomas)
  
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