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TREASURIES-U.S. yields fall as risk appetite fades ahead of key events
June 6, 2017 / 7:41 PM / 6 months ago

TREASURIES-U.S. yields fall as risk appetite fades ahead of key events

* Longer-dated yields touch lowest levels since November

* Investors eye U.K. election, ECB meeting, Comey testimony

* China may buy more U.S. bonds as yuan steadies-Bloomberg (Updates prices, adds quote)

By Gertrude Chavez-Dreyfuss and Richard Leong

NEW YORK, June 6 (Reuters) - U.S. long-dated Treasury yields fell to seven-month lows on Tuesday, as nervous investors favored the safety of bonds ahead of Thursday’s general election in Britain, the European Central Bank’s policy meeting, and former FBI Director James Comey’s testimony before a Senate panel.

Ten-year Treasury yields, which move inversely to prices, currently sit at 2.141 percent. A close at or below that yield could test the psychological 2.0 percent level, said Lou Brien, market strategist at DRW Trading in Chicago.

“We have a situation here where technicals are informing the direction of Treasuries, with the various risk events adding to the momentum,” said Brien.

In the British election, a tightening race between the ruling Conservative Party over the opposition Labor Party, based on recent polls, raised uncertainty about Britain’s path in its exit from the European Union.

Traders have also speculated on whether ECB policymakers might signal a possible end to the central bank’s bond purchase program at its upcoming meeting amid an improving European economy.

Comey’s first public appearance since he was fired by U.S. President Donald Trump, meanwhile, might shed more light on a probe by the Federal Bureau of Investigation into alleged Russian meddling in last year’s U.S. presidential election.

DRW’s Brien also said U.S. Treasuries were boosted by a Bloomberg report saying China is prepared to increase its holdings of U.S. government debt under the right circumstances, as the yuan has stabilized against the dollar.

Safe-haven bids pushed U.S. 10-year Treasury yields to 2.129 percent, the lowest since Nov. 10, two days after Trump’s surprise election victory. Yields were last at 2.143 percent .

John Hermann, rates strategist at MUFG in New York, believes the risk of the 10-year yield topping 3.00 percent is quite limited given that the U.S. economy and Trump’s fiscal package may disappoint market expectations.

“Importantly, should the Democrats fight Trump to the death, and should the Republican party fail to lead, then the Trump fiscal stimulus may fail to arrive from the start – and the yield on the 10-year Treasury note may grind lower back toward 1.30 - even sooner than our models forecast,” he added.

U.S. 30-year bonds rose 22/32 in price, yielding 2.807 percent, compared with Monday’s 2.84 percent.

U.S. two-year yields, meanwhile, were at 1.294 percent, from 1.306 percent late on Monday.

Reporting by Gertrude Chavez-Dreyfuss and Richard Leong; Editing by Chizu Nomiyama

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