May 20, 2019 / 7:41 PM / 4 months ago

TREASURIES-U.S. yields rise in choppy trading; U.S.-China trade in focus

 (Adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 20 (Reuters) - U.S. Treasury yields rose on
Monday, but traded within narrow ranges, reversing course in the
afternoon session, as risk appetite improved somewhat despite
continuing trade tension between the United States and China.
    Volume was generally light, with very little economic data
this week and traders eyeing Friday's early close for Memorial
Day weekend.
    "It's Monday and we're going into a holiday weekend, so
liquidity is a little bit less," said Wen Lu, interest rates and
volatility strategist at TD Securities in New York.
    He also cited Federal Reserve officials who spoke on Monday,
especially St. Louis Fed President James Bullard, who had
positive things to say about the U.S. economy. Bullard said
trade tensions with China need to linger for an extended period
to cause real damage to the United States economy.
    "The key takeaway from the Fed officials today is that the
world is going to be just fine," Lu said.
    On Monday, however, China accused the United States of
harboring "extravagant expectations" for a trade deal,
underlining the gulf between the two sides as U.S. action
against China's technology giant Huawei began hitting the global
tech sector.
    "Right now with all the trade fears going on, everybody is
rushing to safety here," said Stan Shipley, fixed income
strategist at Evercore ISI in New York. "If you look at economic
data, it looks fine in the U.S. and elsewhere too, but people
are very worried about the tariff battle here."
    In late trading, U.S. 10-year note yields rose to 2.413%
, down from 2.393% late on Friday.
    Yields on U.S. 30-year bonds were also higher at 2.831%
, down from 2.824% on Friday.
    On the short end of the curve, however, U.S. 2-year yields
were up at 2.220%, compared with Friday's 2.202%.
    Analysts said the U.S. economy is not nearing recession, but
the risk increases if the trade war with China escalates
    "We've long maintained that the economic expansion's
greatest vulnerability comes in the form of a spike in
uncertainty leading businesses to scale back spending plans,"
said BMO Capital Markets in a research note
    "This eventually risks flowing through to the labor market
as hiring slows, thereby undermining consumer confidence and
spending. Hence, a recession is born."
    BMO said it is too soon for this scenario to happen,
although recent soft U.S. retail sales figures contradicted Fed
Chairman Jerome Powell's stance that the first quarter's weak
consumption was temporary.
    In a week with few economic reports on the schedule, the
highlight is Wednesday's release of the minutes of the Fed's
last monetary policy meeting. Analysts, however, do not expect
surprises from the minutes.
      May 20 Monday 3:28 PM New York / 1928 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.33         2.3756    -0.017
 Six-month bills               2.345        2.4119    -0.010
 Two-year note                 100-14/256   2.2207    0.019
 Three-year note               99-222/256   2.1711    0.022
 Five-year note                100-58/256   2.2012    0.023
 Seven-year note               100-120/256  2.3014    0.024
 10-year note                  99-172/256   2.4122    0.019
 30-year bond                  100-228/256  2.8307    0.007
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         5.75        -0.50    
 U.S. 3-year dollar swap         3.75        -0.75    
 U.S. 5-year dollar swap         0.75        -0.25    
 U.S. 10-year dollar swap       -5.00        -0.25    
 U.S. 30-year dollar swap      -28.00         0.25    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci
and Jonathan Oatis)
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