U.S.-China trade row sends U.S. bond yields tumbling
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FILE PHOTO: A sign marks the U.S Treasury Department in Washington, U.S., August 6, 2018. REUTERS/Brian Snyder
By Richard Leong
NEW YORK (Reuters) - U.S. Treasury yields tumbled on Monday, with 10-year yields hitting the lowest since November 2016, as fears over escalating U.S.-China trade tensions renewed concerns about an economic downturn and spurred a fourth straight session of gains in bonds.
China allowed the yuan to breach the key seven-per-dollar level for the first time in more than a decade, a sign Beijing might be willing to tolerate more currency weakness that could further inflame the bilateral trade conflict.
Chinese state media said local firms have halted U.S. agricultural purchases, elevating anxiety about tit-for-tat moves by the world's two biggest economies. The Chinese measures followed U.S. President Donald Trump's threat last week to impose 10% tariffs on $300 billion of Chinese imports starting Sept. 1.
"There's a lot of fears out there," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. "What is the path that could end this? It doesn't seem we are going to get there anytime soon."
The growing trade friction seemed to have begun hurting the U.S. services sector on top of squeezing domestic manufacturers.
The Institute for Supply Management's index on U.S. services activity showed the vast economic sector's growth slowed to its weakest level in three years in July.
Anxious investors have been bailing from stocks and other risky assets with Wall Street's main stock indexes falling 2%.
They have favored U.S. government debt, the Japanese yen, gold and other perceived low-risk assets to park their money.
The Treasuries market recorded a total return of 1.31% last week, which was its biggest weekly gain since November 2011, according to an index compiled by Bloomberg and Barclays.
In late U.S. trading, the yield on benchmark 10-year Treasury notes
The two-year yield
Interest rates futures implied traders fully expect the U.S. Federal Reserve to lower rates again at its Sept. 17-18 policy meeting after cutting them last week for the first time since 2008, CME Group's FedWatch program showed.
The difference between the three-month Treasury bill rate
This curve "inversion" between the two maturities has preceded every U.S. recession in the past 50 years.
The blistering demand for Treasuries is expected to stoke bids for this week's quarterly refunding where the government will sell $38 billion in three-year debt, $27 billion in 10-year notes and $19 billion in 30-year bonds.
"I wouldn't expect to have a major impact on refunding," said Jon Hill, an interest rates strategist at BMO Capital Markets.
August 5 Monday 2:25PM New York / 1825 GMT
Price
US T BONDS SEP9
10YR TNotes SEP9
Price Current Net
Yield % Change
(bps)
Three-month bills
Six-month bills
Two-year note
Three-year note
Five-year note
Seven-year note
10-year note
30-year bond
YIELD CURVE Last (bps) Net
Change
(bps)
10-year vs 2-year yield 15.40 2.35
30-year vs 5-year yield 76.00 3.75
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap -0.50 -3.00
spread
U.S. 3-year dollar swap -4.75 -3.50
spread
U.S. 5-year dollar swap -6.50 -2.75
spread
U.S. 10-year dollar swap -11.75 -3.25
spread
U.S. 30-year dollar swap -42.75 -4.25
spread
(Reporting by Richard Leong; Editing by Steve Orlofsky, Paul Simao, Susan Thomas and Richard Chang)
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