May 9, 2019 / 7:15 PM / 4 months ago

TREASURIES-U.S. yields fall on worries about U.S.-China trade talks

    * U.S. sells $19 bln in 30-year bonds to mediocre demand  
    * Trump touts deal within sight, China denies backtracking 
    * U.S. 3-month, 10-year yield curve briefly inverts

 (Updates market action, adds quote, graphic)
    By Richard Leong
    NEW YORK, May 9 (Reuters) - U.S. Treasury yields fell on
Thursday, with longer-dated yields hitting five-week lows, as
China and the United States were set to resume tense trade talks
just hours ahead of the Trump administration's plan to raise
tariffs on Chinese imports.
    The safe-haven demand for Treasuries offset selling activity
tied to traders' making room for $84 billion of debt related to
this week's quarterly refunding, which is expected to raise
$28.6 billion in cash for the federal government.
    Beijing and Washington had seemed close to a trade agreement
until last weekend, when President Donald Trump announced his
intention to hike tariffs on $200 billion of Chinese goods to
25% from 10% beginning on Friday. His negotiators said 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 United States 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 that would slow global growth and business activity 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."
    In afternoon U.S. trading, the yields on benchmark 10-year
Treasury notes were down 2.6 basis points at 2.457%
after hitting a five-week low at 2.422%
    Ten-year yields briefly fell below three-month bill rates
 for the first time since March when an inversion had
stoked talk of a U.S. recession.
    Thursday's $19 billion 30-year bond auction, the final leg
of the refunding, fetched mediocre demand, albeit stronger than
the $27 billion 10-year note sale a day earlier.
    After the dismal 10-year auction, there was some speculation
China might be paring its bidding for this week's Treasury
supply in response to Trump's threat on tariffs, but most
analysts concluded the reduced demand stemmed from general
jitters over U.S.-China trade tensions.
    China is the biggest foreign holder of Treasuries, at $1.131
trillion in February.  
    "Uncertainties over the China tariff issues, the potential
for rising inflation if levies are hiked to 25%, and this week's
price swings may have unnerved investors, leaving the paper
mostly in dealer hands," Kim Rupert, managing director of global
fixed income analysis at Action Economics in San Francisco,
wrote in a research note.
    Looking ahead, traders await government data on the Consumer
Price Index due at 8:30 a.m. (1230 GMT) Friday; analysts
forecast a mild 0.2% pickup in April.
   Thursday, May 9, at 1447 EDT (1847 GMT):
 US T BONDS JUN9               148-19/32    12/32     
 10YR TNotes JUN9              123-248/256  7/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.38         2.4275    -0.007
 Six-month bills               2.38         2.4423    -0.007
 Two-year note                 99-247/256   2.2682    -0.027
 Three-year note               99-180/256   2.2279    -0.030
 Five-year note                99-250/256   2.2549    -0.028
 Seven-year note               100-40/256   2.3505    -0.030
 10-year note                  99-64/256    2.4601    -0.023
 30-year bond                  102-96/256   2.8805    -0.010
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       19.00        0.55      
 30-year vs 5-year yield       62.50        1.75      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.50        -0.50    
 U.S. 3-year dollar swap         7.00        -0.25    
 U.S. 5-year dollar swap         3.50         0.00    
 U.S. 10-year dollar swap       -2.25         0.00    
 U.S. 30-year dollar swap      -26.00        -1.00    

 (Reporting by Richard Leong
Editing by Bernadette Baum and Leslie Adler)
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