May 31, 2018 / 7:04 PM / 6 months ago

TREASURIES-Long-dated yields slide after U.S. hits EU, Canada, Mexico with tariffs

 (Adds comment, updates prices in text, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 31 (Reuters) - U.S. Treasury yields on the
long end of the curve fell on Thursday after the United States
slapped tariffs on steel and aluminum imports from the European
Union, Canada and Mexico, rekindling fears of a trade war.
    U.S. 10-year note and 30-year bond yields, which move
inversely to prices, have fallen in five of the last six
sessions, reversing an uptrend that has been in place for the
last couple of months.
    The United States on Thursday said it was moving ahead with
tariffs on aluminum and steel imports from Canada, Mexico and
the European Union, ending a two-month exemption. 
    U.S Commerce Secretary Wilbur Ross told reporters in a
telephone briefing that a 25 percent tariff on steel imports and
a 10 percent tariff on aluminum imports from the EU, Canada and
Mexico would go into effect at midnight.
    The U.S. move ignited a storm of protests from the three
affected nations.
    In response to the U.S. tariff announcement, the European
Union will impose countermeasures, said the head of the bloc's
executive, Jean-Claude Juncker.
    Germany's foreign minister Heiko Mass called the tariff
decision unlawful, while France's junior trade minister
Jean-Baptiste Lemoyne said the country won't let unjustifiable
and unjustified measures go unanswered."
    Canadian Prime Minister Justin Trudeau said his government
will announce retaliatory measures against U.S. tariffs.

    "This will keep a cap on yields in the Treasuries market and
keep the curve flattener trade in vogue," said Sean Simko, head
of global fixed income management at SEI in Oaks, Pennsylvania.
    Curve flatteners take advantage of the rate environment in
which long-term rates are decreasing at a rate faster than
short-term rates.
    "The news on trade war has been circulated for the last six
months. We have positioned accordingly since the beginning of
the year. We are looking as safe-haven assets as a back-up,"
Simko added.  
    The tariff measures overshadowed news that Italy's
anti-establishment political leaders have reached a deal on
Thursday to resurrect their proposed coalition government,
averting the prospect of a new snap election, which had shaken
global markets on Tuesday.
    These global headlines also outweighed U.S. economic reports
such as U.S. consumer spending and initial jobless claims that
were solid overall, affirming expectations of at least two more
rate hikes this year.
    In afternoon trading, U.S. 10-year yields fell to 2.831
percent, from Wednesday's 2.844 percent.
    U.S. 30-year yields dropped to 2.992 percent, 
from 3.017 percent late on Wednesday.
    On the short end of the curve, however, U.S. 2-year yields
were up at 2.419 percent, from Wednesday's 2.411
percent.
    
      Thursday, May 31 at 1447 EDT (1847 GMT):
                               Price                  
 US T BONDS JUN8               145-27/32    0-13/32   
 10YR TNotes JUN8              120-176/256  0-20/256  
                               Price        Current   Net
                                            Yield     Change
                                            (pct)     (bps)
 Three-month bills             1.88         1.9151    -0.008
 Six-month bills               2.0325       2.082     0.000
 Two-year note                 100-40/256   2.4193    0.008
 Three-year note               100-66/256   2.5336    0.003
 Five-year note                100-94/256   2.671     -0.002
 Seven-year note               100-156/256  2.7786    -0.012
 10-year note                  100-100/256  2.8296    -0.014
 30-year bond                  102-148/256  2.994     -0.023
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        25.75         1.75    
 spread                                               
 U.S. 3-year dollar swap        21.25         1.50    
 spread                                               
 U.S. 5-year dollar swap        12.75         1.25    
 spread                                               
 U.S. 10-year dollar swap        4.75         1.00    
 spread                                               
 U.S. 30-year dollar swap       -9.00         1.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Richard Leong; Editing by Jonathan Oatis and Chizu Nomiyama)
  
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