May 13, 2019 / 4:34 PM / 4 months ago

TREASURIES-U.S. bonds market rallies as China plans tariff retaliation

    * Beijing to slap higher duties on $60 bln of U.S. goods
    * U.S. 3-month, 10-year part of yield curve inverts 
    * Speculation about China dumping U.S. bonds heats up again 

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 13 (Reuters) - U.S. Treasury yields fell to
six-week lows on Monday as investors piled into low-risk assets
after China announced plans to impose additional tariffs on
U.S.-made goods in retaliation for a U.S. increase in duties on
Chinese imports on Friday. 
    China's finance ministry said early on Monday it plans to
set import tariffs ranging from 5% to 25% on 5,140 U.S. products
on a target list worth about $60 billion. It said the tariffs
will take effect on June 1.            
    Beijing's response rattled already jittery investors, who
were caught off guard by last week's breakdown of efforts to
reach a trade deal between the world's biggest economic powers.
    Investors and analysts are assessing the impact from this
round of tariffs on global business activities.
    "With rising protectionist measures, the damage to economic
growth is increasing," said Stephen Gallagher, U.S. chief
economist at Societe Generale in New York.
    He estimated the latest round of U.S. and Chinese tariffs
may reduce global economic growth by 0.15%.
    At 12:25 p.m. (1625 GMT), the yield on the benchmark 10-year
Treasury was 6.4 basis points lower at 2.3909% after
touching 2.389%, the lowest since March 29. 
    Ten-year yields fell below those on three-month Treasury
bills. A sustained inversion of this part of the
yield curve has preceded every U.S. recession in the past 50
    As investors shifted money into Treasuries, yen, gold and
other safe-haven assets, they pulled money out of stocks and
other risky investments. Wall Street's main indexes fell sharply
in early trading with the S&P 500 losing 2.57%.
    In addition to more tariffs, traders are concerned China,
which is the largest foreign U.S. creditor, may dump Treasuries
as a weapon to counter the Trump administration's hardening
trade stance.
    Most analysts downplayed such a move, which would send U.S.
borrowing costs soaring, strengthen the yuan and hurt Chinese
exporters. It would also hammer the value of China's massive
Treasury holdings, which totaled $1.131 trillion in February.

    "I think the Chinese would be 'shooting themselves in the
foot' should they dump Treasuries," Ellis Phifer, senior market
strategist at Raymond James, wrote in a research note. 
    "Of course, even with the massive cost, I would not put it
past them to threaten such a move," he added.
May 13 Monday 12:24PM New York / 1624 GMT
 US T BONDS JUN9               149-20/32    31/32     
 10YR TNotes JUN9              124-132/256  17/32     
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.365        2.4115    -0.017
 Six-month bills               2.3575       2.4183    -0.025
 Two-year note                 100-34/256   2.1803    -0.072
 Three-year note               99-244/256   2.1412    -0.073
 Five-year note                100-92/256   2.1731    -0.077
 Seven-year note               100-162/256  2.2761    -0.070
 10-year note                  99-212/256   2.3944    -0.061
 30-year bond                  100-216/256  2.8331    -0.040
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       21.30        1.45      
 30-year vs 5-year yield       65.70        3.55      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.25        -1.50    
 U.S. 3-year dollar swap         5.75        -1.50    
 U.S. 5-year dollar swap         2.75        -1.00    
 U.S. 10-year dollar swap       -3.25        -1.25    
 U.S. 30-year dollar swap      -27.75        -2.00    

 (Reporting by Richard Leong; Editing by Dan Grebler)
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