July 17, 2019 / 1:37 PM / a month ago

TREASURIES-Yields fall on weak housing, U.S.-China trade concerns

    * Housing permits fall to two-year low in June
    * Expected Fed rate cut caps U.S. yield increases

    By Karen Brettell
    NEW YORK, July 17 (Reuters) - U.S. Treasury yields fell on
Wednesday after data showed weakness in the U.S. housing market
and as concerns about the trade war between the United States
and China boosted demand for safe haven debt.
    U.S. homebuilding fell for a second straight month in June
and permits dropped to a two-year low, suggesting the housing
market continued to struggle despite lower mortgage rates.
    Building permits tumbled 6.1% to a rate of 1.220 million
units in June, the lowest level since May 2017.             
    “The housing starts were a little weaker but the building
permits were definitely significantly weaker,” said Justin
Lederer, an interest rates strategist at Cantor Fitzgerald in
New York.
    Benchmark 10-year notes             were last up 9/32 in
price to yield 2.09%, after falling as low as 2.08% after the
housing data.
    Yields have risen from more than 2-1/2 year lows reached
earlier this month and the yield curve has steepened as jobs,
inflation and retail sales data show that the U.S. economy is
improving.
    The move has been capped, however, with the Federal Reserve
seen as certain to cut rates when it meets later this month as
the U.S.-China trade war weighs on the global economic outlook.
            
    U.S. President Donald Trump said on Tuesday the U.S. still
has a long way to go to conclude a trade deal with China but
could impose tariffs on an additional $325 billion worth of
Chinese goods if it needed to do so.             
    The U.S. could also face Chinese sanctions, following a
World Trade Organization ruling on Tuesday.             
    Interest rate futures traders are pricing in a 65% chance of
a 25 basis point cut this month and a 35% likelihood of a 50
basis point cut, according to the CME Group’s FedWatch tool.
    Strong demand for European government debt is also adding to
demand for U.S. Treasuries. U.S. debt offers a significantly
higher yield than comparable German government bonds, which
traded at a yield of minus 0.29% on Wednesday.             

 (Editing by Susan Thomas)
  
 
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