November 20, 2019 / 8:50 PM / in 3 months

TREASURIES-U.S. yields tumble on continued U.S.-China trade tension

* U.S. 10-year, 30-year yields fall to 3-week lows

* Phase one China trade deal unlikely to be completed this year

* U.S. Senate passes bill supporting Hong Kong protesters

* Fed minutes show U.S. central bank on hold (Recasts, adds new comment, Fed minutes; updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 20 (Reuters) - U.S. long-dated yields fell to three-week lows on Wednesday, weighed down by renewed jitters about trade talks with China after news, citing sources, that a “phase one” or preliminary deal may not be completed this year.

The United States and China have been tangled in a trade war over the last two years that have resulted in bouts of tit-for-tat tariffs, rocking financial markets and threatening to pressure global growth.

Reuters reported on Wednesday, citing trade experts and people close to the White House, that negotiations to finalize a deal may extend into next year, as Beijing presses for more extensive tariff rollbacks, and as the Trump administration counters with heightened demands of its own.

New U.S. tariffs on $156 billion in Chinese goods are set to go into effect on Dec. 15, including on holiday gift items.

Failure to cut a deal could force the Federal Reserve to reconsider its stance on pausing interest rate cuts, analysts said.

“The latest trade headlines added to the negativity,” said Gennadiy Golderg, senior rates strategist, at TD Securities in New York. “If there is no trade deal, the market could price in higher odds of a rate cut next year.”

U.S. 10-year and 30-year yields have fallen in six of the last seven sessions, while two-year yields dropped to two-week lows.

Amid persistent trade tension, the U.S. yield curve continued to flatten on Wednesday, with the spread between the two-year and 10-year note yields hitting 15 basis points , the narrowest in three weeks. The yield spread has contracted for six straight sessions.

U.S. yields also took a hit overnight after the U.S. Senate on Tuesday unanimously passed legislation aimed at protecting human rights in Hong Kong. China, in reaction, vowed to undertake strong counter-measures.

In afternoon trading, U.S. 10-year note yields fell to a three-week low at 1.728%. They were last down at 1.734%, from 1.786% late on Tuesday.

Tom di Galoma, managing director at Seaport Global Securities in New York noted that “the market is overextended right now,” having had a big move from 1.90% in 10-year notes to 1.72%. He believes Treasury yields could go higher into year-end.

Yields on 30-year bonds also slid to three-week troughs of 2.192%, last changing hands at 2.202%, down from 2.256% Monday.

On the short-end of the curve, U.S. two-year yields slid to two-week lows of 1.565%. They were last at 1.569%, down from Tuesday’s 1.596%.

Also on Wednesday, the Fed released the minutes of last month’s monetary policy meeting, which showed an increasingly divided central bank that decided to hit pause in its easing cycle following a rate cut at the meeting. (Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski and Marguerita Choy)

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