December 6, 2018 / 3:29 PM / 12 days ago

TREASURIES-U.S. yields tumble as traders pare Fed rate-hike outlook

    * Yield curve steepens from flattest levels in over a decade
    * Worries about Brexit, U.S.-China trade spur safe-haven
bids
    * ADP U.S. jobs data fall short, U.S. trade gap widest in 10
years

 (Updates market action, adds quote, table, graphic)
    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 shift 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 outperformance of the short-end of the yield curve is
driven by a repricing of rate-hike expectations," said Jonathan
Cohn, interest rate strategist at Credit Suisse 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.
    At 10:18 a.m. (1518 GMT), the yield on two-year Treasury
notes fell 10 basis points to 2.711 percent after
touching its lowest level since Sept. 10.
    The benchmark 10-year yield hit a three-month
trough of 2.845 percent. It was last down 7 basis points at
2.851 percent.
    The spread between two-year and 10-year yields
 widened 2 basis points to 13.60 basis points
after it narrowed to 9 basis points on Tuesday, its tightest
level in over a decade.
    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, suggesting the Trump administration's
tariff-related measures to shrink the trade gap likely have been
ineffective.
    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 10:14AM EDT/ 1514 GMT
                               Price                   
 US T BONDS MAR9               143-9/32     1-4/32     
 10YR TNotes MAR9              120-168/256  0-164/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             2.37         2.4172     -0.006
 Six-month bills               2.4825       2.5488     -0.021
 Two-year note                 100-19/256   2.7111     -0.100
 Three-year note               100-112/256  2.7187     -0.100
 Five-year note                100-204/256  2.7028     -0.096
 Seven-year note               100-168/256  2.7709     -0.084
 10-year note                  102-92/256   2.8506     -0.072
 30-year bond                  104-200/256  3.1278     -0.049
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        16.75         0.75     
 spread                                                
 U.S. 3-year dollar swap        14.00         0.00     
 spread                                                
 U.S. 5-year dollar swap        13.25         0.00     
 spread                                                
 U.S. 10-year dollar swap        6.00         0.00     
 spread                                                
 U.S. 30-year dollar swap      -12.25         0.50     
 spread                                                
 

    
 (Reporting by Richard Leong; Editing by Bernadette Baum)
  
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