November 20, 2019 / 3:55 PM / 2 months ago

TREASURIES-U.S. long-dated yields drop to three-week lows on renewed China tension

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 20 (Reuters) - U.S. long-dated yields fell to
three-week lows on Wednesday, weighed down by renewed anxiety
about trade talks with China after the U.S. Senate on Tuesday
unanimously passed legislation aimed at protecting human rights
in Hong Kong.
    U.S. 10-year and 30-year yields have fallen in six of the
last seven sessions, while two-year yields dropped to two-week
    Amid persistent trade tension, the U.S. yield curve
continued to flatten on Wednesday, with the spread between the
two-year and 10-year note yields hitting 15 basis points
, the narrowest in three weeks. The yield spread
has contracted for six straight sessions.
    Following the voice vote, the "Hong Kong Human Rights and
Democracy Act" will go to the House of Representatives, which
approved its own version last month. The bill was passed amid a
crackdown on the pro-democracy protest movement in Hong Kong.

    China on Wednesday condemned the passage of the bill and
vowed strong counter-measures to safeguard its sovereignty and
    The United States and China have been tangled in a trade war
over the last two years that have resulted in bouts of
tit-for-tat tariffs, shaking financial markets and threatening
to undermine global growth.
    "It looks like China is going to retaliate. That's why we
saw the big move overnight," said Tom di Galoma, managing
director at Seaport Global Securities in New York.
    He noted, though, that "the market is overextended right
now," having had a big move from 1.90% in 10-year notes to 1.72%
and believed that Treasury yields could go higher into year-end.
    In morning trading, U.S. 10-year note yields
fell to a three-week low at 1.728%. They were last down at
1.756%, from 1.786% late on Tuesday.
    Yields on 30-year bonds also slid to three-week
troughs of 2.192%, last changing hands at 2.223%, down from
2.256% Monday.
    On the short-end of the curve, U.S. two-year yields slid to
two-week lows of 1.567%. They were last at 1.581%,
down from Tuesday's 1.596%.
    Seaport's di Galoma is closely watching the UK election next
month, which was called by British Prime Minister Boris Johnson
to break the Brexit deadlock.
    "A Boris Johnson win means UK rates can go higher by 20-25
basis points. I think that would impact the Treasury market,
pushing U.S. yields higher as well, as we get closer to the
election," di Galoma said.
    Later in the session, the Federal Reserve will release the
minutes of last month's monetary policy meeting, but analysts
said they will unlikely add any new information to what Fed
Chairman Jerome Powell had already testified last week before
U.S. lawmakers.
    Powell last week said the U.S. economy's current expansion
is on a sustainable footing.
      November 20 Wednesday 10:43 AM New York/1543 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.54         1.5718    0.005
 Six-month bills               1.54         1.578     0.000
 Two-year note                 99-215/256   1.5839    -0.012
 Three-year note               100-38/256   1.5739    -0.019
 Five-year note                99-136/256   1.5989    -0.021
 Seven-year note               99-152/256   1.6872    -0.024
 10-year note                  99-248/256   1.7534    -0.033
 30-year bond                  103-84/256   2.2223    -0.034
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        -1.50        -0.50    
 U.S. 3-year dollar swap        -4.75        -0.25    
 U.S. 5-year dollar swap        -7.25        -0.50    
 U.S. 10-year dollar swap      -11.00         0.00    
 U.S. 30-year dollar swap      -39.25         0.50    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)
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