June 18, 2018 / 7:24 PM / 9 months ago

TREASURIES-Long-term U.S. yields edge higher in thin trade

    * U.S. yields move in line with U.S. stocks
    * U.S. yield curve steepens after flattening in recent weeks

 (Recasts with rise in yields, adds comments, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 18 (Reuters) - U.S. long-dated Treasury
yields drifted higher on Monday, as Wall Street shares trimmed
losses, in a lull after a hectic week when the Federal Reserve
struck an upbeat tone on the U.S. economy.
    Yields had fallen earlier, in line with U.S. stocks, as
investors worried about an escalating U.S.-China trade war.
    "The drift higher in Treasury yields was step by step with
the stock market coming off the lows earlier," said Lou Brien,
market strategist, at DRW Trading Chicago.
    After U.S. President Donald Trump decided to push ahead with
hefty tariffs on $50 billion of Chinese imports, China said on
Friday it would respond with tariffs "of the same scale and
strength" and that any previous trade deals with Trump were
    The official Xinhua news agency said China would impose 25
percent tariffs on 659 U.S. products, ranging from soybeans and
autos to seafood.
    The tit-for-tat pushed U.S. equities lower and dragged
yields down as well.
    "Trade wars are one of those things that's difficult to
react to until you see the results because there's always a
chance for renegotiation or a stop, or some companies changing
orders, or making new decisions," DRW's Brien said.
    The trade news came after the Fed raised interest rates last
week by 25 basis points and signaled two more hikes this year.

    In afternoon trading, U.S. 10-year yields were up at 2.927
percent, from Friday's 2.924 percent.
    U.S. 30-year yields rose to 3.056 percent,
compared with 3.047 late on Friday.
    On the short end, U.S. two-year yields were at 2.557 percent
, up slightly from 2.553 percent on Friday.
    The yield curve steepened, with the spread between U.S.
2-year and 10-year notes widening to 37.7 basis points
    The trend has been toward flattening, as U.S. rate hike 
expectations ramped up, boosting short-dated yields.
    Some market participants believe the yield curve is on its
way to inverting, a market move in which short-term U.S.
interest rates rise above longer-term bond yields. That
typically has preceded recent U.S. recessions.
    But some like Justin Lederer, Treasury trader at Cantor
Fitzgerald in New York, says a probable yield curve inversion
does not necessarily presage a recession given the strength of
the recent U.S. economic data.
      June 18 Monday 2:55PM New York / 1855 GMT
 US T BONDS SEP8               143-17/32    -0-4/32   
 10YR TNotes SEP8              119-148/256  -0-4/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.8925       1.9275    -0.005
 Six-month bills               2.0475       2.097     0.026
 Two-year note                 99-228/256   2.5575    0.004
 Three-year note               99-220/256   2.6742    -0.006
 Five-year note                99-198/256   2.7992    -0.002
 Seven-year note               99-232/256   2.8898    0.000
 10-year note                  99-140/256   2.9278    0.004
 30-year bond                  101-80/256   3.0576    0.011
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.25        -0.75    
 U.S. 3-year dollar swap        22.50         0.50    
 U.S. 5-year dollar swap        14.25         0.50    
 U.S. 10-year dollar swap        6.25         0.25    
 U.S. 30-year dollar swap       -6.50         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard
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