September 14, 2018 / 7:13 PM / 7 months ago

TREASURIES-U.S. yields fall as Trump seeks more tariffs on Chinese goods

 (Recasts; updates tariff news, rates, analyst quotes)
    By Kate Duguid
    NEW YORK, Sept 14 (Reuters) - U.S. Treasury yields retreated
on Friday on reports President Donald Trump has instructed aides
to proceed with tariffs on about $200 billion more Chinese
goods, despite Treasury Secretary Steven Mnuchin's attempts to
restart trade talks with China.
    Yields at the long end of the curve made the biggest moves.
The yield on the benchmark U.S. 10-year Treasury note
            fell by as much as 2.2 basis points after earlier
breaking above the key technical level of 3 percent for the
first time since early August. 
    The 30-year yield             fell by as much as 2.6 basis
    "Was anyone particularly shocked that the news came out
today that the president wants to hold on to these tariffs going
into the talks? I was surprised that the market was shocked by
it," said Ellis Phifer, market strategist at Raymond James. 
    The price of 10-year Treasury futures        rose as bets
against 10-year Treasury futures by hedge funds were at record
levels. The 10-year futures market saw the day's heaviest burst
of trading, helping explain the reaction in yields.  
    "Equity markets tend to be more emotional, so that was
probably the biggest issue," said Ellis. "The bond market took
it more from a short-term allocation out of equities."
    The 10-year U.S. Treasury yield earlier broke above 3
percent on solid economic data and signs the Federal Reserve was
likely to raise interest rates another two times in 2018. 
    On Friday morning Chicago Fed President Charles Evans
delivered a message viewed as more hawkish than previous
statements, saying rate hikes would begin to weigh on the U.S.
economy next year and that it was normal. He added that it was
premature to read too much into the flattening yield curve. 
    As recently as this spring, Evans had argued the Fed should
stop raising rates to allow inflation to rise to 2 percent.
    Also on Friday, data showed U.S. retail sales recorded their
smallest gain in six months in August, but upward revisions to
July data likely kept expectations of strong third-quarter
economic growth intact.             
    Strong data had kept yields afloat this week as the Treasury
Department auctioned $144 billion in fresh supply. On Wednesday,
$23 billion of 10-year notes were sold to strong demand. The
response to Tuesday's auction of three-year notes and Thursday's
of 30-year bonds was solid. 
    The 10-year yield was last at 2.990 percent, with the
30-year at 3.128 percent. The two-year note yield was last at
2.782 percent, a session high. 

 (Reporting by Kate Duguid; Editing by Meredith Mazzilli)
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