August 16, 2019 / 3:26 PM / a month ago

TREASURIES-Yields rise from three-year lows on German fiscal stimulus hopes

 (Recasts with yield move, adds German report, updates prices)
    * Report that Germany may run budget deficit if necessary
    * U.S.-China trade war remains worry for investors
    * Fed Chairman Powell to speak at Jackson Hole next Friday

    By Karen Brettell
    NEW YORK, Aug 16 (Reuters) - Benchmark U.S. Treasury yields
rose on Friday on a report that Germany may be open to running a
deficit to boost growth, while stronger stock markets also
reduced demand for safe haven debt.
    Government bond yields plunged this week on concerns about
global growth, and the closely-watched U.S. yield curve between
2-year and 10-year notes inverted for the first time since 2007
on Wednesday, signaling that a U.S. recession is likely in
one-to-two years.
    As economic data worsens, central banks globally are
expected to adopt increasingly dovish monetary policies to
loosen financial conditions.
    With much of the European government bond market offering
negative yields, however, there is concern that central banks
are out of ammunition and that governments will need to turn to
fiscal stimulus to bolster their economies.
    Treasury yields jumped after Der Spiegel magazine reported
that Germany's right-left coalition government would be prepared
to ditch its balanced budget rule and take on new debt to
counter a possible recession.             
    Benchmark 10-year notes             were last down 15/32 in
price to yield 1.578%, up from a three-year low of 1.475% on
Thursday.
    Concerns about growth are expected to remain as the
U.S.-China trade war shows no signs of resolution.
    “The market is attempting to gauge the extent, duration and
magnitude of the fallout from the trade war,” said Ian Lyngen,
head of U.S. rates strategy at BMO Capital Markets in New York.
    The Federal Reserve last month cut interest rates for the
first time in over a decade and said further cuts may not be
needed.
    The bond market, however, sees a rate decrease at the U.S.
central bank’s September meeting as a sure thing, with the only
question being the size of the cut.
    Interest rate futures traders are pricing in a 74% chance of
a 25-basis-point cut and a 26% chance of a 50-basis-point one,
according to the CME Group’s FedWatch tool.
    Fed Chairman Jerome Powell is due to speak at the Fed’s
economic symposium in Jackson Hole, Wyoming, on Aug. 23. His
comments will be closely evaluated for any indications that he
has changed his stance on further rate cuts.
    Plunging yields across the globe have also sent investors to
longer-dated debt to capture returns. Thirty-year Treasury bond
yields had fallen to a record low of 1.916% on Thursday. They
were last 2.037%.


 (Editing by Nick Zieminski
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