U.S. Markets

U.S. yields tumble on trade worries, political tension

NEW YORK (Reuters) - U.S. Treasury yields fell on Monday, in line with the weak stock market, as trade worries and global political tensions in places such as Hong Kong and Argentina supported safe-haven assets.

FILE PHOTO: Flags of U.S. and China are displayed at American International Chamber of Commerce (AICC)'s booth during China International Fair for Trade in Services in Beijing, China, May 28, 2019. REUTERS/Jason Lee

U.S. 30-year bond yields slid to their lowest since July 2016. U.S. long-term yields have fallen in six of the past nine sessions, reflecting investors’ diminished risk appetite.

European bond yields were also lower on the day.

The U.S. yield curve has also flattened significantly, suggesting mounting anxiety. The yield spread between U.S. 2-year and 10-year notes, a closely watched metric, narrowed to 5.3 basis points, the smallest difference since at least 2010, according to Refinitiv data.

The bond rally was triggered by protests in Hong Kong over the weekend, which originally stemmed from opposition to a bill allowing extradition to the mainland. That crippled Hong Kong’s airport, while in Argentina the defeat of President Mauricio Macri during primary elections added to global stress.

“The Hong Kong demonstrations and their ability to shut down the airport and the surprise in Argentina took the wind out of the sails of the stock market,” said Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee.

“We’re back to worrying that things are still unsettled and so there’s no need to push stocks higher, and without that optimism, without that ‘things-are-getting-better’ impulse behind stocks, Treasury yields are moving to the lower middle of the range,” he added.

Italy also had political problems after the League party last week filed a no-confidence motion against its own governing coalition. The party’s populist chief Matteo Salvini hopes that the motion move will trigger early elections and have him installed as the new leader.

Concern about the U.S.-China trade conflict persisted. A week ago, China allowed the yuan CNY=CFXS to break through the key 7-per-dollar level for the first time since 2008, prompting Washington to label Beijing a currency manipulator and sparking market turmoil.

Analysts also said Monday’s bond rally was exaggerated by a slew of holidays in Asia, particularly Japan, Singapore and India.

In afternoon trading, U.S. benchmark 10-year note yields fell to 1.64% US10YT=RR, from 1.734% late on Friday.

Since the beginning of the year, 10-year yields have fallen more than a hundred basis points, on track for its steepest drop in eight years.

Yields on 30-year bonds slid to 2.13% US30YT=RR, from 2.247% on Friday. Earlier, they fell to a more than three-year low of 2.119%.

At the short end of the curve, two-year yields slipped to 1.581%, from Friday's 1.63% US2YT=RR.

“As long as there is global political tension, we’re going to get downward pressure on U.S. yields,” Stan Shipley, fixed income strategist, at Evercore ISI in New York, said.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Will Dunham and Richard Chang