November 19, 2019 / 8:03 PM / 25 days ago

TREASURIES-U.S. long yields drop on nagging trade tension with China

    * U.S. 10-, 30-year yields drop to two week lows
    * U.S. yield curve hits flattest level in two weeks
    * Trump to raise tariffs higher if there is no China trade
    * U.S. data shows generally solid housing market

 (Adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 19 (Reuters) - U.S. long-dated Treasury yields
fell to fresh two-week lows on Tuesday, with risk appetite
weaker overall amid persistent uncertainty over U.S.-China trade
    U.S. 10-year and 30-year yields have fallen in five of the
last six sessions.
    Bond investors are cautiously optimistic a trade deal
between the world's two largest economies will get done, but the
delay, after what has been a two-year trade war, has kept market
participants on the sidelines.
    "It's more trade jitters that knocked the Dow a little bit
lower again - more of a safety trade," said Kim Rupert, managing
director of global fixed income at Action Economics in San
    U.S. President Donald Trump stirred the pot once again on
trade. He said on Tuesday the United States would raise tariffs
on Chinese imports if no deal is reached with Beijing. 
    Speaking at a cabinet meeting at the White House, Trump said
he had a good relationship with China, noting that China was
"moving along." However, he said China would have to make a deal
"I like."
    "If we don't make a deal with China, I'll just raise the
tariffs even higher," he told a room filled with senior U.S.
    On economic data, the reports showed that homebuilding
rebounded in October and permits for future home construction
jumped to a more than 12-year high. The numbers
though had minimal impact on the Treasury market, with the focus
on trade and other factors.
    Amid the trade standoff, the U.S. yield curve continued to
flatten on Tuesday, with the spread between the two-year and
10-year note yields at 18.7 basis points, the
narrowest in two weeks. The curve has flattened for five 
straight sessions.
    Aside from the trade factor, Action Economics' Rupert said
the curve has flattened as the Federal Reserve has paused its
interest rate-cutting cycle.
    "A rate hike is out of the picture and a rate cut is pretty
far off into the future. So I think that's what's giving the
long end most of the gains here," she added.
     In afternoon trading, U.S. 10-year note yields
fell to a two-week low at 1.777%. They were last down at 1.789%,
from 1.808% late on Monday.
    Yields on 30-year bonds also slid to two-week
troughs of 2.249% and last changed hands at 2.258%, down from
2.293% Monday.
    On the short-end of the curve, however, U.S. two-year yields
were higher at 1.598%, up from Monday's 1.592%.
    New York Federal Reserve President John Williams on Tuesday
affirmed the Fed's neutral stance on monetary policy after
cutting interest rates three times this year.
    "I think we have monetary policy in the right place," he 
said during a discussion at a capital markets conference in
Washington. "The economy is right where we would like it to be."

      November 19 Tuesday 2:52 P.M. New York / 1952 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.535        1.5667    -0.007
 Six-month bills               1.54         1.578     0.000
 Two-year note                 99-207/256   1.6002    0.008
 Three-year note               100-22/256   1.5954    0.000
 Five-year note                99-104/256   1.6254    0.000
 Seven-year note               99-104/256   1.716     -0.010
 10-year note                  99-164/256   1.7894    -0.019
 30-year bond                  102-144/256  2.2569    -0.036
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        -1.00        -1.75    
 U.S. 3-year dollar swap        -4.25        -1.25    
 U.S. 5-year dollar swap        -6.75        -1.50    
 U.S. 10-year dollar swap      -11.00        -0.50    
 U.S. 30-year dollar swap      -39.75         0.50    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler
and Marguerita Choy)
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