August 6, 2018 / 6:53 PM / 10 months ago

TREASURIES-U.S. bond yields fall on trade tensions before refunding

    * U.S.-China trade tension stokes safe-haven bids for bonds
    * U.S. to sell $78 bln in debt for August refunding
    * Speculators build record net shorts in 5-yr, 10-yr T-notes
    * JPMorgan CEO Dimon says U.S. 10-year yield may hit 5 pct 

 (Updates market, adds quote)
    By Richard Leong
    NEW YORK, Aug 6 (Reuters) - U.S. Treasury yields dipped on
Monday, with the 10-year yield hitting a two-week low on
safe-haven demand stemming from the trade conflict between
United States and China, the world's two largest economies.
    Bids for less risky Treasuries came ahead of this week's
August refunding where the government will sell $78 billion in
coupon-bearing securities.
    "It's the trade tension between U.S. and China that's caused
a pickup in bids for Treasuries," said James Barnes, director of
fixed income at Bryn Mawr Trust in Devon, Pennsylvania.
    Chinese state media on Monday criticized U.S. President
Donald Trump's trade policies as his administration seeks to
impose a 25 percent tariff on $200 billion worth of Chinese
    Nervousness about the U.S.-China trade dispute has mitigated
concerns about the growing U.S. federal deficit in the aftermath
of a massive tax cut in December and a two-year spending deal in
    The government's increasing reliance on IOUs to finance its
spending and debt obligations has yet to hurt demand for its
    "Supply has created its own demand. There has not been a
problem," said Don Ellenberger, head of multi-sector strategies
at Federated Investors in Pittsburgh. "At what point that will
break the camel's back? We just don't know."
    The rising U.S. indebtedness poses broad upward pressure on
bond yields, Bryn Mawr's Barnes said. "I think it will put
upward pressure on long-term yields to reflect this increase in
issuance," he said. 
    The U.S. Treasury Department will sell $34 billion in
three-year notes on Tuesday; $26 billion in
10-year debt on Wednesday and $18 billion in
30-year bonds on Thursday.
    Fund managers have loaded up on Treasuries as their yields
have ticked up, while speculators have accumulated a record
amount of bets that U.S. government debt will lose its value.
    Speculative net shorts on U.S. five-year and 10-year
Treasury futures reached all-time peaks last week, according to
Commitments of Traders data from the Commodity Futures Trading
Commission released on Friday.
    On Saturday, JPMorgan Chase & Co Chief Executive Jamie Dimon
said at the Aspen Institute's 25th annual summer celebration
gala that the 10-year U.S. Treasury yield could rise to 5
percent or higher, according to Bloomberg.    
    The benchmark 10-year Treasury yield slipped
nearly 2 basis points to 2.934 percent on Monday after falling
as low as 2.925 percent. The 10-year yield has retreated after
breaking above 3 percent last week for the first time since late
June, after a mixed U.S. July jobs report.
    The decline in longer-dated Treasury yields narrowed the gap
between five-year and 30-year yields to 26.40 basis points
before ending flat at 27.50 basis points. 
    The yield curve held above levels in July, when it was at
its flattest in over a decade.
August 6 Monday 2:27PM New York / 1827 GMT
 US T BONDS SEP8               143-10/32    11/32     
 10YR TNotes SEP8              119-196/256  5/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.9775       2.0145    0.007
 Six-month bills               2.1575       2.2109    0.000
 Two-year note                 99-244/256   2.6493    0.004
 Three-year note               99-182/256   2.7277    -0.005
 Five-year note                99-194/256   2.8024    -0.014
 Seven-year note               99-244/256   2.8824    -0.020
 10-year note                  99-128/256   2.9339    -0.018
 30-year bond                  100-232/256  3.0781    -0.015
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       28.30        -1.90     
 30-year vs 5-year yield       27.50        0.05      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        21.25        -0.25    
 U.S. 3-year dollar swap        19.00         0.25    
 U.S. 5-year dollar swap        14.50         0.00    
 U.S. 10-year dollar swap        7.00        -0.25    
 U.S. 30-year dollar swap       -5.00        -0.25    

 (Reporting by Richard Leong
Editing by Bernadette Baum and Paul Simao)
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