January 22, 2019 / 8:39 PM / 7 months ago

TREASURIES-U.S. yields sag on growth, U.S.-China trade worries

    * China grew at slowest pace in 28 years in 2018
    * Huawei's CFO arrest stokes U.S.-China trade tension
    * U.S. existing home sales fall to three-year low in
December
    * U.S. rebuffs offer from China on initial trade talks -FT

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Jan 22 (Reuters) - U.S. Treasury yields dropped on
Tuesday as investors shifted some cash back into the bond
market, prompted by worries over slowing global growth and trade
tensions between China and the United States.
    A record-long U.S. government shutdown also fed safe-haven
demand for Treasuries, with benchmark 10-year yields retreating 
from three-week peaks set last week.
    One of the hurdles to Washington and Beijing resolving their
trade spat is the case of Meng Wanzhou, executive of Chinese
technology giant Huawei, who was arrested on Dec. 1 in Vancouver
for violating U.S. sanctions on Iran. 
    The United States will proceed with the formal extradition
of Wanzhou, Canada's ambassador to the United States David
MacNaughton told the Globe and Mail paper on Monday. Beijing
vowed to respond to Washington's actions.
    The Trump administration has rejected China's offer for
preparatory trade talks this week before next week's high-level
negotiations, according to the Financial Times, citing people
briefed on the talks.
    "The U.S.-China trade situation is not going to be easily
resolved," said Robert Tipp, chief investment strategist at PGIM
Fixed Income in Newark, New Jersey.
    In addition to trade tensions with the U.S., China is
seeking to combat weakening domestic growth that slowed to 6.6
percent in 2018, its lowest annual level since 1990.

    The United States is facing its own economic predicament.
Domestic home resales tumbled 6.4 percent to an annualized 4.99
million units in December, the slowest rate since November 2015.

    Economists also expect a drag on U.S. growth in the first
quarter from the federal government shutdown which is entering
its second month. 
    "The longer the shutdown goes, the worse the economic
impact," Jonathan Cohn, interest rate strategist at Credit
Suisse in New York, said.
    The struggles of the world's two biggest economies, together
with those in Europe and some emerging markets, led the
International Monetary Fund on Monday to downgrade its view on
global growth in 2019 and 2020 to 3.5 percent and 3.6 percent,
respectively.
    The yield on benchmark 10-year Treasury notes
was 2.737 percent, down 4.5 basis points from Friday's close. It
reached a three-week peak at 2.799 percent on Friday.
    U.S. financial markets were shut on Monday for the Martin
Luther King Jr. holiday.
    The futures market recorded a couple of big blocks of
purchases in five-year and ultra bond contracts, underscoring a
revived demand for Treasuries after last week's selling, traders
and analysts said.
    
    Tuesday, Jan. 22 at 1528 EST (2028 GMT):
                               Price                  
 US T BONDS MAR9               145-10/32    25/32     
 10YR TNotes MAR9              121-136/256  12/32     
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             2.355        2.4011    -0.003
 Six-month bills               2.4325       2.496     -0.005
 Two-year note                 99-217/256   2.5807    -0.031
 Three-year note               99-214/256   2.5575    -0.044
 Five-year note                100-62/256   2.5722    -0.046
 Seven-year note               99-224/256   2.6447    -0.048
 10-year note                  103-80/256   2.7374    -0.045
 30-year bond                  106-36/256   3.0594    -0.037
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       15.70        -1.15     
 30-year vs 5-year yield       48.70        1.40      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        14.75                 
 spread                                               
 U.S. 3-year dollar swap        11.75                 
 spread                                               
 U.S. 5-year dollar swap         8.25        -0.50    
 spread                                               
 U.S. 10-year dollar swap        3.00        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -18.75        -1.00    
 spread                                               
 
    

    
 (Reporting by Richard Leong; Editing by Bernadette Baum and
Susan Thomas)
  
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