May 20, 2019 / 2:26 PM / a month ago

TREASURIES-Yields drift lower on ongoing U.S.-China trade tension

    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 20 (Reuters) - U.S. Treasury yields slipped on
Monday, with long-dated debt falling for a second straight
session and Wall Street stocks weaker, as risk appetite
diminished amid ongoing 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.
    On Monday, 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 mid-morning trading, U.S. 10-year note yields slipped to
2.389%, down from 2.393% late on Friday.
    Yields on U.S. 30-year bonds were also lower at 2.814%
, down from 2.824% on Friday.
    On the short end of the curve, however, U.S. 2-year yields
were slightly up at 2.206%, compared with Friday's 2.202%
.
    Analysts said a U.S. economy is not nearing recession, but
the risk increases if the trade war with China escalates
further. 
    "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's too soon for this scenario to happen, although
recent soft U.S. retail sales figures contradicted Federal
Reserve 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 the release on Wednesday of the minutes of the
Fed's last monetary policy meeting. Analysts, however, do not
expect surprises from the minutes.

      May 20 Monday 9:54AM New York / 1354 GMT
                               Price                  
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                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.335        2.3807    -0.012
 Six-month bills               2.34         2.4067    -0.015
 Two-year note                 100-21/256   2.2063    0.004
 Three-year note               99-238/256   2.1494    0.000
 Five-year note                100-86/256   2.1778    0.000
 Seven-year note               100-160/256  2.2771    0.000
 10-year note                  99-224/256   2.3891    -0.004
 30-year bond                  101-52/256   2.8153    -0.009
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         5.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap         4.00        -0.50    
 spread                                               
 U.S. 5-year dollar swap         0.75        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -5.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -28.50        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea
Ricci)
  
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