NEW YORK (Reuters) - U.S. Treasury yields declined on Tuesday, pinning the yield curve at its flattest level in nearly 11 years as U.S. stocks slipped in a shortened session, stoking a safe-haven bid for U.S. government debt.
The S&P 500 .SPX ended down 0.86 percent and the Dow Jones Industrial Average .DJI gave up 0.54 percent, weighed down by Apple, Facebook and other technology stocks, after trading in positive territory for most of the day. The stock market closed early ahead of the U.S July Fourth holiday on Wednesday.
Treasury yields traded mostly unchanged earlier on news that China pledged to keep its currency stable.
The yuan fell to an 11-month low against the dollar CNY=CFXS as trade tensions grew between the United States and China, the world's two biggest economies. The Trump administration is prepared to impose tariffs on $34 billion of Chinese goods on July 6. Beijing has said it will respond with duties on American-made imports.
Fears of a full-blown global trade war have spurred bets that slower global growth and inflation would mean that longer-dated U.S. yields would not rise much even if the Federal Reserve hikes short-term interest rates, traders and analysts said.
“We have the safety bids on the long-end of the yield curve due to trade concerns,” Milstein said.
Safe-haven demand for bonds has narrowed the spread between short- and long-dated Treasury yields. Some investors are worried short-term yields could rise above long-term ones. This phenomenon, known as a curve inversion, has happened about 12 to 18 months before the past five U.S. recessions.
At 1:31 p.m. (1731 GMT), the spread between two-year and 10-year yields contracted to 29.90 basis points US2US10=TWEB after touching 29.59 basis points, which was the tightest since August 2007.
The five-to-30-yield yield gap US5US30=TWEB hit 22.60 basis points, the slimmest since July 2007, Reuters data showed.
After opening the day flat, yields fell throughout the session.
“There’s definitely some short-covering for the holiday,” said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York.
Low trading volume ahead of the U.S. July Fourth holiday left the Treasury market more sensitive to buying pressure, Lederer said.
The yield on benchmark 10-year Treasury notes US10YT=RR was down 3 basis points at 2.833 percent, while the 30-year yield US30YT=RR was 3 basis points lower at 2.959 percent.
The U.S. bond market will close early at 2 p.m. (1800 GMT) and will stay shut on Wednesday.
July 3 Tuesday 1:33PM New York / 1733 GMT
To view a graphic on the U.S. Yield Curve, click: reut.rs/2zVhQyJ
Reporting by James Thorne and Richard Leong; Editing by David Gregorio and Chizu Nomiyama