May 22, 2020 / 3:27 PM / 9 days ago

TREASURIES-U.S. yields falter as Hong Kong tension weighs

    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 22 (Reuters) - U.S. Treasury yields fell on
Friday, as risk sentiment turned sour after Beijing proposed
imposing a new security law on Hong Kong, exacerbating China's
strained relationship with the United States.
    U.S. 10-year and 30-year yields slid to one-week lows, while
the yield curve flattened for a fourth straight session.
    China's overnight announcement about the security law in
Hong Kong, following last year's pro-democracy rallies, drew a
stern reaction from the Washington. U.S. Secretary of State Mike
Pompeo condemned the proposal as arbitrary and said it could
affect the favorable U.S. treatment of the territory. He said
the United States stands with the people of Hong Kong.

    "The markets are now paying close attention to some of the
pre-coronavirus activity or headlines such as those related to
Hong Kong and China, and now that's weighing on the market a
little bit in terms of pushing yields lower," said Jim Barnes,
director of fixed income at Bryn Mawr Trust in Devon,
Pennsylvania.
    In late morning trading, U.S. 10-year yields
fell to 0.660% from 0.677% late on Thursday, after earlier
falling to a one-week low of 0.627%.
    Yields on U.S. 30-year bonds were at 1.373%,
down from up from 1.398% on Thursday. Earlier, 30-year yields
dropped to a one-week trough of 1.329%.
    U.S. 20-year bond yields were also lower at 1.311%
.
    On the short end of the curve, U.S. two-year yields were
last at 0.163%, down from Thursday's 0.167%.
    The yield curve flattened some more on Friday, with the
spread between the 10-year and two-year narrowing to 49.30 basis
points.
    Overall, traders expected Treasuries to remain rangebound
for awhile, absent a vaccine or treatment for the novel
coronavirus.
    "The technical profile in the U.S. rates market offers very
little to inspire one to expect a defining trading session
anytime soon," said BMO Capital in a research note.
    "This brings us well into June at this point and the
prospects for a breakout dwindle the longer 10s remain
stubbornly between 54 basis points and 78 basis points."
    
      May 22 Friday 10:55 AM New York / 1455 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.12         0.122     0.000
 Six-month bills               0.1525       0.1547    0.008
 Two-year note                 99-237/256   0.1635    -0.003
 Three-year note               99-196/256   0.2042    -0.008
 Five-year note                100-60/256   0.327     -0.011
 Seven-year note               99-248/256   0.5046    -0.013
 10-year note                  99-176/256   0.6574    -0.020
 30-year bond                  96-240/256   1.375     -0.023
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         9.00         0.50    
 spread                                               
 U.S. 3-year dollar swap         6.00         0.50    
 spread                                               
 U.S. 5-year dollar swap         3.50         0.50    
 spread                                               
 U.S. 10-year dollar swap       -0.75         0.75    
 spread                                               
 U.S. 30-year dollar swap      -45.50         1.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss)
  
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