September 27, 2019 / 6:23 PM / 23 days ago

TREASURIES-Yield curve steeper after Trump threatens China delisting

 (Recasts; adds analyst quotes)
    By Karen Brettell and Kate Duguid
    NEW YORK, Sept 27 (Reuters) - The Treasury yield curve
steepened on Friday afternoon following reports that President
Donald Trump's administration is considering delisting Chinese
companies from U.S. stock exchanges, a source briefed on the
matter said. 
    The move would be a radical escalation of trade tensions
between the two countries and part of a broader effort to limit
U.S. investments into China, the source said, confirming an
earlier report by Bloomberg that sent shockwaves through
financial markets.             
    As stocks plunged, yields on shorter duration notes fell,
while those at the long end rose. Treasury bonds act as a
safe-haven in times of market volatility, driving prices up and
yields down. 
    "What we've seen in the afternoon is in part a reaction to
the broad risk tone following these headlines around potential
U.S. limitations on portfolio flows to China. The steepening
really began to accelerate amid those headlines," said Jonathan
Cohn, interest rate strategist at Credit Suisse in New York. 
    The two-year note yield            was last 2.1 basis points
lower to trade at 1.634%. The benchmark 10-year yield
            was up less than a basis point to 1.694%, leaving
the spread between the two bonds - the most commonly used
measure of the yield curve - at 5.6 basis points               .
  
    Yields had fallen earlier in the day after the Commerce
Department reported that U.S. consumer spending barely rose in
August and business investment remained weak, suggesting the
economy was losing momentum as trade tensions linger. 
    Consumer spending, which accounts for more than two-thirds
of U.S. economic activity, edged up 0.1% last month as an
increase in outlays on recreational goods and motor vehicles was
offset by a decrease in spending at restaurants and hotels.
            
    In another report on Friday, the Commerce Department said
orders for non-defense capital goods excluding aircraft, a
closely watched proxy for business spending plans, dropped 0.2%
last month amid weak demand for electrical equipment, appliances
and components, and computers and electronic products.
    "Some of the data was a little bit disappointing, for
example, the consumer spending numbers and the durable orders
numbers. Overall the data was OK, but a little bit lackluster
and I think that's weighing on the tone a little bit," said
Gennadiy Goldberg, an interest rate strategist at TD Securities
in New York.
    

 (Reporting by Karen Brettell and Kate Duguid; Editing by Dan
Grebler and Nick Zieminski)
  
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