July 11, 2018 / 7:46 PM / 2 months ago

TREASURIES-U.S. yields fall as U.S.-China trade fight intensifies

    * U.S. 10-year note auction met with strong demand
    * Trump threatens tariffs on $200 bln worth of Chinese goods
    * U.S. core CPI seen rising 0.2 pct in June - Reuters poll

 (Adds auction results, quote, oil news, updates prices)
    By James Thorne
    NEW YORK, July 11 (Reuters) - U.S. yields slipped on
Wednesday as growing trade tension between China and the United
States contributed to high demand for an auction of 10-year
notes.
    The Treasury sale for $22 billion in 10-year notes resulted
in primary dealers taking their smallest share of supply since
January, in contrast to weak demand for the auction of 3-year
notes on Tuesday. An additional $14 billion in 30-year bonds
will be offered on Thursday.
    Analysts said the 10-year auction boded well for Thursday's
sale of 30-year bonds. "It would be puzzling if what we were
seeing is very strong demand for 10s and not 30s," said Steven
Englander, head of G10 FX and North American macro strategy at
Standard Chartered in New York.
    Investors sought safety after the Trump administration
raised the stakes in a trade dispute with Beijing, threatening
10 percent tariffs on $200 billion of Chinese imports.
    
    "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.
    Yields were further pressured by a sharp slide in oil prices
on Wednesday that lowered inflation expectations.
    The spread between 5-year and 30-year Treasuries dipped
below 19 basis points for the first time since 2007. The spread
between 2-year and 10-year notes also touched a fresh low at
26.29 basis points.
    U.S. benchmark 10-year yields were 2.8 basis
points lower at 2.845 percent, and 30-year bonds
were quoted at 2.946 percent at 3:30 p.m. EDT (1920 GMT).
    CPI data will be released on Thursday at 8:30 a.m. EDT (1230
GMT). Economists polled by Reuters expected year-over-year core
inflation to be 2.3 percent for June, compared with 2.2 percent
in May. Predictions for monthly core CPI were 0.2 percent,
according to the poll.
    "If we get a 0.3 on core, the market would react
and relatively sharply. We just haven’t had that many 0.3s,"
Englander said.
    
July 11 Wednesday 3:20PM New York / 1920 GMT
                               Price                  
 US T BONDS SEP8               145-13/32    13/32     
 10YR TNotes SEP8              120-64/256   8/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.925        1.9613    -0.016
 Six-month bills               2.09         2.1417    -0.007
 Two-year note                 99-218/256   2.5776    -0.016
 Three-year note               99-222/256   2.6714    -0.022
 Five-year note                99-116/256   2.7434    -0.029
 Seven-year note               99-152/256   2.8145    -0.027
 10-year note                  100-64/256   2.8454    -0.028
 30-year bond                  103-136/256  2.9462    -0.026
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       26.60        -1.05     
 30-year vs 5-year yield       20.20        -0.55     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        23.50        -1.25    
 spread                                               
 U.S. 3-year dollar swap        19.50        -2.25    
 spread                                               
 U.S. 5-year dollar swap        14.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap        7.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -3.50         0.00    
 spread                                               
 

    
 (Reporting by James Thorne; editing by Grant McCool)
  
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