August 9, 2019 / 2:54 PM / 10 days ago

TREASURIES-U.S. bond yields fall on worries about trade, Europe

    * U.S. PPI rate posts surprising first drop since 2015
    * U.S. may delay letting firms trade with China's Huawei
    * Italy's political woes rattle confidence on euro zone
    * British economy unexpectedly contracts in Q2 ahead of
Brexit

 (Updates market action, adds background)
    By Richard Leong
    NEW YORK, Aug 9 (Reuters) - U.S. Treasury yields fell on
Friday as trade worries about China and the United States flared
up, along with political jitters in Italy and the UK economy's
surprise contraction in the second quarter, fueling demand for
safe-haven U.S. debt.
    Washington, meanwhile, was delaying a decision on 
permitting some trade between U.S. companies and China's telecom
equipment maker Huawei, in retaliation for Beijing suspending
its purchases of U.S. farming goods, Bloomberg reported.

    Worries about Italy, the euro zone's third-biggest economy,
were rekindled late on Thursday after its deputy prime minister,
Matteo Salvini, sought snap elections following a period of
public fighting between Salvini's League party and the
anti-establishment 5-Star Movement.
    Adding to investors' jitters was news that the British
economy unexpectedly contracted in the second quarter, the first
time since 2012, as Prime Minister Boris Johnson prepares to
pull the country out of the European Union in October.

    "These are not positive news, but they are bond-friendly
news," said Mary Ann Hurley, vice president of fixed income at
D.A. Davidson in Seattle. "No one wants to go short going into
the weekend because they don't know what's going to happen."
    At 10:52 a.m. (1452 GMT), benchmark 10-year Treasury yields
 were 1.3 basis points lower at 1.702%. They hit
1.595% on Wednesday, which was their lowest level since October
2016. 
    Ten-year yields are on track for a second week of decline,
which would be their steepest two-week drop in nearly eight
years, according to Refinitiv data.
    The yield on the 30-year, or long, bond was down
 3.3 basis points at 2.214%. On Wednesday, the 30-year yield
fell to 2.123%, within striking distance of an all-time low of
2.089% set in July 2016, according to Refinitiv data.
    Longer-dated yields were also supported by data that showed
U.S. domestic producer prices grew modestly in July, with core
prices posting their first decline since October 2015.

    Sluggish inflation, together with trade and geopolitical
turmoil, reinforced traders' expectations the Federal Reserve
would lower its key lending rate by at least a quarter point at
its Sept. 17-18 policy meeting.
    Interest rates futures implied traders expect the U.S.
central bank may cut rates at each of its policy meetings the
rest of the year, according to CME Group's FedWatch program.
 August 9 Friday 10:35AM New York / 1435 GMT
                               Price                  
 US T BONDS SEP9               162-11/32    25/32     
 10YR TNotes SEP9              130-32/256   7/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.96         1.9967    -0.026
 Six-month bills               1.895        1.9448    -0.018
 Two-year note                 100-76/256   1.596     -0.021
 Three-year note               99-234/256   1.5294    -0.016
 Five-year note                101-30/256   1.5156    -0.021
 Seven-year note               101-224/256  1.5896    -0.025
 10-year note                  99-116/256   1.6847    -0.030
 30-year bond                  101-40/256   2.1972    -0.050
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       8.50         -1.10     
 30-year vs 5-year yield       68.00        0.30      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -2.00         1.00    
 spread                                               
 U.S. 3-year dollar swap        -4.50         0.75    
 spread                                               
 U.S. 5-year dollar swap        -6.75         1.50    
 spread                                               
 U.S. 10-year dollar swap      -11.75         1.75    
 spread                                               
 U.S. 30-year dollar swap      -42.00         1.00    
 spread                                               
 
   

    
 (Reporting by Richard Leong; Editing by Dan Grebler)
  
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