May 9, 2019 / 2:00 PM / 10 days ago

TREASURIES-U.S. yields fall as higher tariffs loom on Chinese imports

    * U.S. to sell $19 bln in 30-year bonds at 1 p.m. 
    * Investors worry about U.S.-China trade talks 

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 9 (Reuters) - U.S. Treasury yields fell on
Thursday, with longer-dated yields staying above five-week lows,
as China and the United States held tense trade talks ahead of
the Trump administration's plan to impose higher tariffs on
Chinese imports on Friday.
    The safe-haven demand for Treasuries came ahead of the
government's sale of $19 billion in new 30-year bonds
 at 1 p.m. (1700 GMT). That would be the final
leg of its $84 billion quarterly refunding which is expected to
raise $28.6 billion in fresh cash from investors.
    Beijing and Washington had seemed close to a trade agreement
until last weekend, when U.S. President Donald Trump announced
his intention to hike tariffs on $200 billion of Chinese goods
to 25% from 10% on Friday, with his negotiators saying China was
backtracking on earlier commitments.
    A Chinese delegation led by Vice Premier Liu He arrived in
Washington to salvage a deal, calling for the U.S. to meet China
halfway.
    Investors worry that the world's two biggest economies may
not reach an agreement by Friday, leading to a continuing trade
war between them that would slow global growth and business
activities and hurt corporate profits.
    "I don't think we are going to get an all-clear sign on
Friday," said Blake Gwinn, head of front-end rates strategy at
NatWest Markets in Stamford, Connecticut. "This could keep
rolling along for weeks or months."
    At 9:31 a.m. (1331 GMT), the yields on benchmark 10-year
Treasury notes were down 4.4 basis points at 2.439%.
They decreased to a five-week low of 2.4260% on Wednesday.
    The Treasury complex's initial rally on Wednesday came to a
halt on hopes for a U.S.-China trade pact. It slipped into
negative territory after a dismal $27 billion 10-year note
auction.
    The overall bidding for 10-year supply was the weakest in
more than 11 years.
    There was some speculation China might have pared its
bidding for the benchmark issue due to Trump's threat on more
tariffs, but most analysts concluded the reduced demand stemmed
from general jitters over U.S.-China trade tensions.  
    "The one comforting takeaway is that there are no strong
signs that China is pulling back as a consequence of the
heightened tension in the trade talks," Tom Simons, senior money
market strategist at Jefferies LLC, wrote in a research note.
May 9 Thursday 9:44AM New York / 1344 GMT
                               Price                  
 US T BONDS JUN9               148-27/32    20/32     
 10YR TNotes JUN9              124-28/256   12/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.375        2.4224    -0.012
 Six-month bills               2.375        2.4371    -0.012
 Two-year note                 99-251/256   2.26      -0.035
 Three-year note               99-188/256   2.217     -0.041
 Five-year note                100-14/256   2.2382    -0.045
 Seven-year note               100-72/256   2.331     -0.049
 10-year note                  99-108/256   2.4405    -0.043
 30-year bond                  102-200/256  2.8604    -0.031
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       17.90        -0.55     
 30-year vs 5-year yield       62.10        1.30      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         9.25        -0.75    
 spread                                               
 U.S. 3-year dollar swap         6.75        -0.50    
 spread                                               
 U.S. 5-year dollar swap         3.50         0.00    
 spread                                               
 U.S. 10-year dollar swap       -2.25         0.00    
 spread                                               
 U.S. 30-year dollar swap      -25.75        -0.75    
 spread                                               
 
    

 (Reporting by Richard Leong
Editing by Bernadette Baum)
  
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