May 7, 2019 / 7:16 PM / 4 months ago

TREASURIES-U.S. yields fall on trade jitters; 3-year auction mediocre

    * U.S. to sell $38 bln 3-year notes to mediocre demand
    * U.S.-China trade jitters stoke safe-haven demand for bonds
    * Longer-dated Treasury yields fall to five-week lows
    * Investors most neutral on Treasuries in five weeks -

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, May 7 (Reuters) - U.S. Treasury yields fell on
Tuesday with longer-dated yields hitting five-week lows as
worries about renewed trade tension between China and the United
States and its impact on global economic growth spurred
safe-haven demand for bonds.
    A demand pickup for Treasuries, which have driven up the 
bond prices, reined in bidding for $38 billion of three-year
government note supply, the first leg of this week's $84 billion
quarterly refunding.
    On Sunday, U.S. President Donald Trump threatened to raise
tariffs on $200 billion worth of Chinese goods to 25% from 10%
by the end of the week, and would "soon" target remaining
Chinese imports with tariffs. 
    The surprise decision cast doubts over the world's two
biggest economies reaching a trade agreement any time soon,
spurring investors to sell stocks and other risky assets and to
flock into bonds.
    "Without a trade deal and a round of tariffs, that will have
impact on economic growth," said Mary Ann Hurley, vice president
of fixed income at D.A. Davidson in Seattle. "That's positive
for bonds."
    The yields on benchmark 10-year Treasury notes
touched a five-week low at 2.444% before retracing to 2.4495%,
which was down 5 basis points from late on Monday. 
    Thirty-year yields were last at 4.4 basis points
lower at 2.8635% after hitting a five-week low at 2.857%.
    Investors turned the most neutral in five weeks on
longer-dated Treasuries after an overall upbeat payrolls report
in April on Friday and the Federal Reserve's signal that it sees
no reason to raise or cut interest rates right now, according to
a J.P. Morgan survey released on Tuesday.
    Wall Street's major indexes tumbled more than 2%,
adding to Monday's losses.
    Traders are pinning hopes that a deal is still within reach
after Beijing said earlier on Tuesday that Chinese Vice Premier
Liu He will visit the United States this week for trade talks.

    This safe-haven demand for Treasuries due to trade worries
has complicated this week's refunding, which was expected to
refund $55.4 billion to bondholders and to raise $28.6 billion
in new cash for the federal government.
    The latest three-year note issue fetched
mediocre demand, according to traders, resulting in the lowest
yield at an auction for this maturity in 16 months.
    The Treasury will sell $27 billion in 10-year notes
 on Wednesday and $19 billion in 30-year bonds
 on Thursday. 
May 7 Tuesday 2:57PM New York / 1857 GMT
 US T BONDS JUN9               148-22/32    28/32     
 10YR TNotes JUN9              124          12/32     
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.3775       2.4253    -0.001
 Six-month bills               2.375        2.4373    -0.014
 Two-year note                 99-240/256   2.2824    -0.027
 Three-year note               100-6/256    2.2415    -0.036
 Five-year note                99-252/256   2.2533    -0.040
 Seven-year note               100-48/256   2.3457    -0.049
 10-year note                  101-132/256  2.4495    -0.050
 30-year bond                  102-184/256  2.8635    -0.044
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       16.60        -1.10     
 30-year vs 5-year yield       60.90        -1.50     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.75        -0.25    
 U.S. 3-year dollar swap         6.50        -0.25    
 U.S. 5-year dollar swap         3.50        -0.75    
 U.S. 10-year dollar swap       -2.25         0.00    
 U.S. 30-year dollar swap      -25.25         0.00    

 (Reporting by Richard Leong
Editing by Chizu Nomiyama and Susan Thomas)
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