June 15, 2018 / 1:19 PM / 6 months ago

TREASURIES-Bonds gain safety bid as China tariffs provoke trade war fears

* U.S. imposes tariffs against China

* Dovish ECB statement adds bid for bonds

By Karen Brettell

NEW YORK, June 15 (Reuters) - U.S. Treasury yields fell to their lowest levels in a week on Friday after the U.S. imposed trade sanctions on China, raising fears about trade wars that could weigh on economic growth.

U.S. President Donald Trump announced hefty tariffs on $50 billion of Chinese imports on Friday as Beijing threatened to respond in kind, in a move that looks set to ignite a trade war between the world’s two largest economies.

Trump, whose hardline stance on trade has seen him wrangle with allies, said in a statement that a 25 percent tariff would be imposed on a list of strategically important imports from China. He also promised further measures if Beijing struck back.

“You’ve seen a little bit of a risk off trade, which is aiding in the Treasury rally,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

Benchmark 10-year notes gained 10/32 in price to yield 2.910 percent, down from 2.946 percent on Thursday.

U.S. bonds also gained in line with European government debt a day after the European Central Bank’s statement was interpreted as being dovish.

“There is a continuation of reaction to yesterday’s ECB’s statement and Draghi’s comments,” Lederer said.

The ECB decided to end its 2.55 trillion euro ($3.02 trillion) bond-purchase program at the close of the year and said interest rates would stay unchanged until the summer of 2019.

As a result, traders pushed back expectations of a rate hike to September 2019, three months later than they had previously anticipated.

“‘Through the summer’ is intentionally not precise,” ECB President Mario Draghi told a press conference. “There is a desire to maintain optionality in each and every part of this decision.”

The Bank of Japan on Friday downgraded its assessment on inflation and its governor stressed his resolve to keep the money spigot wide open, reinforcing views Japan will lag well behind its U.S. and European peers in dialing back crisis-mode policies. )

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