December 6, 2018 / 7:44 PM / 6 months ago

TREASURIES-U.S. yields fall as traders cool on more Fed rate hikes

    * Yield curve steepens from flattest levels in over a decade
    * Worries about Brexit, U.S.-China trade spur safe-haven
    * ADP U.S. jobs data fall short, U.S. trade gap widest in 10
    * Fed's Bostic sees neutral rate "within shouting distance"

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Dec 6 (Reuters) - U.S. Treasury yields tumbled on
Thursday, with 10-year yields hitting three-month lows, as
traders scaled back expectations on the number of rate hikes the
Federal Reserve would implement amid weakening economic data and
market volatility.
    Uncertainties over negotiations for Britain to exit the
European Union and worries over escalating trade tensions
between China and United States following the arrest of a top
executive of Chinese technology giant Huawei Technologies Co.
also stoked safe-haven demand for U.S. government debt, analysts
and traders said.
    The backtracking in the rate-hike outlook kindled appetite
for short-dated Treasuries, tilting the yield curve slightly
away from its flattest levels in over a decade.
    Earlier this week, shorter-dated yields rose above medium
yields for the first time since early 2008, stoking speculation
about a U.S. recession in the coming months. 
    "The yield curve is pricing out rate hikes. There are just
worries about the global economy," said Karl Haeling, vice
president at Landesbank Baden-Wurttemberg in New York.
    Interest rate futures implied traders now see no more than
one rate increase from the Fed in 2019, compared with
expectations for possibly two rate hikes a month earlier,
according to CME Group's FedWatch program.
    Fed policymakers are still expected to increase key
short-term lending rates by a quarter point to a target range of
2.25-2.50 percent at their Dec. 18-19 meeting.
    Atlanta Fed President Raphael Bostic said the Fed is within
"shouting distance" of a neutral rate where borrowing costs are
supportive of growth without stoking inflation.
    At 2:28 p.m. (1928 GMT), the yield on two-year Treasury
notes fell 6 basis points to 2.763 percent after
touching 2.693 percent, its lowest level since Sept. 10.
    The benchmark 10-year yield hit a three-month
trough of 2.826 percent. It was last down over 5 basis points at
2.867 percent.
    The spread between two-year and 10-year yields
 had widened as much as 2 basis points before
reversing little changed at 11.90 basis points. On Tuesday, it
contracted to 9 basis points, its tightest in over a decade.
    Treasury yields bounced from session lows as Wall Street
pared earlier losses with the Dow coming back from a 785
    U.S. financial markets were closed on Wednesday for a
national day of mourning for former U.S. President George H.W.
Bush who died last Friday.
    Thursday's domestic economic data did not bolster traders'
confidence about the economy.
    The U.S. trade deficit surged to a 10-year high in October
as soybean exports fell further and imports of consumer goods
rose to a record high.
    Payroll processor ADP said domestic private payrolls grew by
179,000 last month, fewer than the 195,000 forecast of analysts
polled by Reuters.
December 6 Thursday 2:27PM EDT/ 1927 GMT
 US T BONDS MAR9               143-10/32    1-5/32     
 10YR TNotes MAR9              120-116/256  0-112/256  
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             2.365        2.4121     -0.011
 Six-month bills               2.48         2.5462     -0.024
 Two-year note                 100-1/256    2.7478     -0.063
 Three-year note               100-84/256   2.7576     -0.061
 Five-year note                100-162/256  2.7381     -0.061
 Seven-year note               100-128/256  2.7956     -0.059
 10-year note                  102-56/256   2.8667     -0.056
 30-year bond                  104-204/256  3.127      -0.050
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap        16.00         0.00     
 U.S. 3-year dollar swap        13.00        -1.00     
 U.S. 5-year dollar swap        12.75        -0.50     
 U.S. 10-year dollar swap        6.25         0.25     
 U.S. 30-year dollar swap      -12.00         0.75     
 (Reporting by Richard Leong; Editing by Bernadette Baum and
Susan Thomas)
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