June 7, 2018 / 5:49 PM / 2 months ago

TREASURIES-U.S. yields fall as trade worries halt market selloff

    * Concerns on trade push into forefront before G7 summit
    * U.S. jobless claims unexpectedly fall last week
    * U.S. to sell $68 bln coupon-bearing debt next week
    * Companies raise $33 bln in investment-grade market -IFR

 (Updates to afternoon market action, adds quote)
    By Richard Leong
    NEW YORK, June 7 (Reuters) - U.S. Treasury yields fell on
Thursday, reversing the prior day's sell-off, as safe-haven
demand rose on tensions between the United States and its major
trade partners ahead of the Group of Seven summit.
    U.S. President Donald Trump stuck to his tough stance
against top allies ahead of the summit on Friday and Saturday in
Charlevoix, Quebec, after imposing tariffs on steel and aluminum
imports from Canada, Mexico and the European Union last week.

    Trump's stand rekindled fears of a trade war that could harm
economic growth worldwide, analysts said.
    "Trade tension has been ramping back up. The synchronized
global growth story which we have been speaking about since last
year has frayed a bit," said Ilya Gofshteyn, global macro
strategist at Standard Chartered in New York.
    Trade concerns overshadowed speculation about the outcome of
the European Central Bank's debate next week about ending the
expansion of its 2.55 trillion euro ($3 trillion) bond purchase
program in September.
    Traders also waited for the U.S. Federal Reserve to signal
how many times it would raise interest rates for the rest of
2018 as domestic labor conditions tighten and inflation moves
closer to its 2 percent goal.
    "If the ECB is not blinking on Italy, why should the Fed?"
said Aaron Kohli, interest rates strategist at BMO Capital
Markets in New York, said of Italy's recent struggle to form a
government.
    Earlier on Thursday, the Labor Department said first-time
filings for jobless benefits unexpectedly declined last week to
222,000.
    Traders widely expect the U.S. central bank to raise key
overnight borrowing costs by a quarter point to a 1.75 percent
to 2.00 percent range next Wednesday.
    The yield on benchmark 10-year Treasury notes
was down 5.3 basis points at 2.922 percent after touching a near
two-week high at 2.994 percent earlier Thursday.
    U.S. yields have retraced much of last week's steep drop
tied to political turmoil in Italy. They had moved in step with
their European counterparts on anxiety Italian ruling parties
would implement economic policies that balloon the country's
indebtedness and challenge rules to stay in the euro zone.
    "With Italy more in the rear-view mirror, the view is that
euro zone is still on relatively solid footing," Gofshteyn said.
    The 10-year German Bund yield edged up 0.6 basis
point to 0.468 percent following a 9 basis point jump the day
before, which was its biggest one-day rise in nearly a year.  
    This week's heavy supply of higher-yielding corporate bonds
has supported Treasury yields, analysts said.
    So far this week, companies raised about $33.15 billion in
the investment-grade bond market, according to IFR, a unit of
Thomson Reuters.
    Meanwhile, the U.S. Treasury Department said on Thursday it
would sell a combined $68 billion in three-year, 10-year and
30-year securities next week.
June 7 Thursday 1:40PM New York / 1740 GMT
                               Price                  
 US T BONDS SEP8               143-17/32    36/32     
 10YR TNotes SEP8              119-184/256  14/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9          1.9356    -0.005
 Six-month bills               2.065        2.1156    -0.015
 Two-year note                 100-10/256   2.4795    -0.040
 Three-year note               100-14/256   2.6052    -0.050
 Five-year note                99-248/256   2.7567    -0.056
 Seven-year note               100-8/256    2.87      -0.055
 10-year note                  99-160/256   2.9186    -0.056
 30-year bond                  101-4/256    3.0728    -0.057
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       43.80        -1.20     
 30-year vs 5-year yield       31.40        0.30      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        27.75         1.25    
 spread                                               
 U.S. 3-year dollar swap        22.75         0.75    
 spread                                               
 U.S. 5-year dollar swap        13.50         0.50    
 spread                                               
 U.S. 10-year dollar swap        5.50         0.00    
 spread                                               
 U.S. 30-year dollar swap       -8.00         0.50    
 spread                                               
 
    
 (Reporting by Richard Leong; Editing by Meredith Mazzilli and
Richard Chang)
  
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