May 7, 2019 / 3:32 PM / 4 months ago

TREASURIES-U.S. yields slip on trade worries before 3-year supply

    * U.S. to sell $38 bln 3-year notes at 1 p.m.
    * U.S.-China trade jitters stoke safe-haven demand for bonds
    * Investors most neutral on Treasuries in five weeks -
JPMorgan

 (Updates market action, adds graphic)
    By Richard Leong
    NEW YORK, May 7 (Reuters) - U.S. Treasury yields fell on
Tuesday for a second day with 10-year yields slipping below
2.50%, prompted by worries about renewed trade tension between
China and the United States and its impact on global economic
growth.
    Safe-haven demand for U.S. government debt bodes well for
this week's $84 billion May refunding, which kicks off with a 
three-year note sale at 1 p.m. (1700 GMT).
    "The inaugural coupon supply for May’s refunding week will
be today's $38 (bln) 3-year auction, and given the latest trade
war salvo there is surely at least a modest bullish backdrop to
today’s supply," BMO Capital Markets analysts wrote in a
research note. 
    On Sunday, U.S. President Donald Trump threatened to raise
tariffs on $200 billion worth of Chinese goods to 25% from 10%
by the end of the week, and would "soon" target remaining
Chinese imports with tariffs. 
    The surprise decision cast doubts over the world's two
biggest economies reaching a trade agreement any time soon,
spurring investors to sell stocks and other risky assets and to
flock into bonds.
    Wall Street's major indexes tumbled more than 1%,
adding to Monday's losses.
    Traders are pinning hopes that a deal is still within reach
after Beijing said earlier on Tuesday that Chinese Vice Premier
Liu will visit the United States this week for trade talks.

    At 11:22 a.m. (1522 GMT), the yield on benchmark 10-year
Treasury notes was down 4 basis points at 2.4602%. 
    Thirty-year yields were 3.4 basis points lower
at 2.8736%.
    Investors turned the most neutral on longer-dated Treasuries
this week after an overall upbeat payrolls report in April on
Friday and the Federal Reserve's signal that it sees no reason
to raise or cut interest rates right now, according to a J.P.
Morgan survey released on Tuesday. 
    In "when-issue" activity, traders expected the upcoming
three-year issue to sell at a yield of 2.241%,
which was lower than the 2.301% at the previous three-year
auction in April, Tradeweb data showed. 
    The Treasury will sell $27 billion in 10-year notes
 on Wednesday and $19 billion in 30-year bonds
 on Thursday.
    These quarterly debt sales are expected to refund $55.4
billion to bondholders and to raise $28.6 billion in new cash
for the federal government.
May 7 Tuesday 11:19AM New York / 1519 GMT
                               Price                  
 US T BONDS JUN9               148-17/32    23/32     
 10YR TNotes JUN9              123-236/256  10/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.3775       2.4253    -0.001
 Six-month bills               2.3775       2.4399    -0.011
 Two-year note                 99-242/256   2.2783    -0.031
 Three-year note               100-2/256    2.247     -0.030
 Five-year note                99-244/256   2.26      -0.033
 Seven-year note               100-32/256   2.3554    -0.040
 10-year note                  101-104/256  2.462     -0.038
 30-year bond                  102-128/256  2.8743    -0.034
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       18.20        0.65      
 30-year vs 5-year yield       61.30        -1.10     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        10.50         0.50    
 spread                                               
 U.S. 3-year dollar swap         6.75         0.00    
 spread                                               
 U.S. 5-year dollar swap         4.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -2.00         0.25    
 spread                                               
 U.S. 30-year dollar swap      -25.00         0.25    
 spread                                               
    
    

    
 (Reporting by Richard Leong
Editing by Chizu Nomiyama and Susan Thomas)
  
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