June 15, 2018 / 6:21 PM / 9 months ago

TREASURIES-Bond prices gain as China tariffs provoke trade war fears

 (Adds quotes, updates prices)
    * U.S. imposes tariffs against China
    * Dovish ECB statement adds bid for bonds

    By Karen Brettell
    NEW YORK, June 15 (Reuters) - U.S. Treasury yields fell to
their lowest levels in a week on Friday after the U.S. imposed
trade sanctions on China, raising fears about trade wars that
could weigh on economic growth.
    U.S. President Donald Trump announced hefty tariffs on $50
billion of Chinese imports as Beijing threatened to respond in
    "You've seen a little bit of a risk off trade, which is
aiding in the Treasury rally," said Justin Lederer, an interest
rate strategist at Cantor Fitzgerald in New York.
    Benchmark 10-year notes             gained 10/32 in price to
yield 2.910 percent, down from 2.946 percent on Thursday.
    U.S. bonds also gained in line with European government debt
a day after the European Central Bank's meeting was interpreted
as being dovish.
    "There is a continuation of reaction to yesterday's ECB's
statement and Draghi's comments," Lederer said.
    The ECB decided to end its 2.55 trillion euro ($3.02
trillion) bond-purchase program at the close of the year and
said interest rates would stay unchanged until the summer of
    As a result, traders pushed back expectations for a rate
hike to September 2019, three months later than they had
previously anticipated.
    "'Through the summer' is intentionally not precise," ECB
President Mario Draghi told a press conference. "There is a
desire to maintain optionality in each and every part of this
    Relief that the Federal Reserve struck a moderate tone when
it raised interest rates on Wednesday also added to bond
    "The Fed came out with something that was really balanced.
They reiterated their gradual approach but at the same time
there were really no signs that are overly worried about
inflation exceeding their target by a wide margin," said Boris
Rjavinski, senior strategist at Wells Fargo in New York.
    The bond rally also fits a pattern of strength after Fed
rate increases, Rjavinski said.
    "More often than not you get a rally in Treasuries following
the FOMC meeting where they increase the rate," he said.
    The Bank of Japan on Friday downgraded its assessment on
inflation and its governor stressed his resolve to keep the
money spigot wide open, reinforcing views Japan will lag well
behind its U.S. and European peers in dialing back crisis-mode

 (Editing by Richard Chang)
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