December 21, 2018 / 7:26 PM / 6 months ago

TREASURIES-U.S. yields near 8-month lows as gov't shutdown threat looms

 (Adds Williams' comments, data, updates prices)
    * U.S. government shutdown threat boosts safety demand for
    * Year-end demand supports bond prices

    By Karen Brettell
    NEW YORK, Dec 21 (Reuters) - U.S. Treasury yields held near
eight-month lows on Friday as President Donald Trump threatened
a "very long" government shutdown and investors were reluctant
to hold risky assets over  the weekend.
    Trump said he would not sign Senate spending legislation if
it not include $5 billion to fund a border wall, forcing a
government shutdown.
    The Republican-led Senate had already approved funds for the
government through Feb. 8 without money for the wall. But Trump
pushed Republican allies in the House of Representatives on
Thursday to use the short-term funding bill as leverage to force
through the border wall money despite Democratic objections.
    “Markets are generally de-risking before the weekend. The
extra uncertainty caused by the threat of a shutdown is
certainly not helping,” said Gennadiy Goldberg, an interest rate
strategist at TD Securities in New York.
    Bonds have rallied since the Federal Reserve on Wednesday
struck a more dovish tone than in its previous meetings even
while pledging to keep withdrawing support from an economy it
views as strong.             
    Some investors had expected the Fed to indicate that further
rate increases would be more data dependent as tumbling stock
markets and slowing international growth raise concerns that the
U.S. economy could also face weakness.
    “They were dovish, (but) they were not dovish enough for
markets' liking,” said Goldberg.
    Stock markets fell on the Fed statement, which increased
demand for low-risk U.S. government debt.
    Bonds weakened slightly on Friday after New York Fed
President John Williams said that the U.S. central bank is open
to reassessing its views and listening to market signals that
the U.S. economy could fall short of expectations, sparking a
brief rally in stocks.             
    Benchmark 10-year yields             were little changed on
the day at 2.792 percent. The yield fell to a more than
eight-month low of 2.748 percent on Thursday, well off a
seven-year high of 3.261 percent reached on Oct. 9.
    Data on Friday showed that the U.S. economy grew in the
third quarter at a rate slightly less than previously estimated,
but the pace was likely strong enough to keep growth on track to
hit the Trump administration's 3 percent target this year.
    U.S. consumer spending increased solidly in November as
households bought motor vehicles and spent more on utilities,
but wage growth remained moderate suggesting the current pace of
consumption was unlikely to be sustained.             
    Bonds have also benefited this week from year-end demand
from fund managers rebalancing portfolios. 

 (Reporting by Karen Brettell; Editing by Steve Orlofsky)
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