June 26, 2018 / 1:49 PM / 20 days ago

TREASURIES-Bonds steady at lower yields as trade war concerns persist

* Trade war fears boosts demand for bonds

* Treasury to sell $100 bln coupon-bearing supply this week

By Karen Brettell

NEW YORK, June 26 (Reuters) - U.S. Treasury yields held at lower levels on Tuesday as concerns lingered that trade wars could harm economic growth, though safety buying was capped by expectations that the Federal Reserve will continue to raise interest rates.

Trade war fears were stoked by reports that the Treasury was drafting curbs that would block firms with at least 25 percent Chinese ownership from buying U.S. companies with “industrially significant technology.”

U.S. Treasury Secretary Steven Mnuchin said on Monday that investment restrictions will not be specific to China. However, White House trade and manufacturing adviser Peter Navarro sought to downplay Mnuchin’s remarks, telling CNBC television that any restrictions would just target China.

“There is still generally a focus on trade and a bit of uncertainty over what we are going to hear from the Trump administration this week regarding potential investment restrictions,” said Brian Daingerfield, macro strategist at RBS Securities in Stamford, Connecticut.

Demand for Treasuries has been offset by some hesitation to buy bonds, with the U.S. central bank expected to continue to raise interest rates.

“The Federal Reserve has yet to show any meaningful signs of slowing its pace of hikes in response to trade,” said Daingerfield.

Fed policymakers earlier this month said two additional rate hikes are expected by the end of this year, compared with one previously.

Benchmark 10-year notes fell 2/32 in price on the day to yield 2.880 percent, up from 2.875 percent late on Monday. The yield curve between two-year and 10-year notes was little changed on the day at 34 basis points, just above the low of 33 basis points on Monday, which was the flattest level since 2007.

Demand for short- and intermediate-dated notes, which are the most sensitive to interest rate increases, will be tested this week by new supply.

The U.S. Treasury will sell $34 billion in two-year notes on Tuesday, $36 billion in five-year notes on Wednesday and $30 billion in seven-year notes on Thursday. )

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