August 26, 2019 / 5:06 PM / 2 months ago

TREASURIES-Trade worries keep U.S. bond yields steady

    * Trump on China: "I think they want to make a deal very
badly"
    * U.S. to sell $113 bln in fixed-rate, coupon-bearing debt
    * U.S. durable goods orders unexpectedly rise in July

 (Updates market action to U.S. midday)
    By Richard Leong
    NEW YORK, Aug 26 (Reuters) - U.S. Treasury yields held
steady on Monday, bouncing off multi-year lows as uncertainties
over trade developments between China and the United States
underpinned safe-haven demand for low-risk government bonds.
    Benchmark 10-year Treasury yields slid to 1.443% earlier on
Monday, their lowest since July 2016, in the wake of another
round of tit-for-tat tariffs between the world's biggest
economies last week.
    On Friday, U.S. President Donald Trump announced an
additional duty on some $550 billion of targeted Chinese goods,
hours after China unveiled retaliatory tariffs on $75 billion
worth of U.S. goods.
    By Monday, Trump and Chinese leaders sought to ease trade
tensions that triggered steep stock market sell-offs around the
world. Trump told a press conference after the G7 summit in
France: "I think they want to make a deal very badly."

    Analysts were not as optimistic.
    "Tough call at this point. In the end, short-term actions
speak louder than words. And the most recent actions on both
sides was not constructive and continues to weigh on sentiment,"
said Greg Faranello, head of U.S. rates at AmeriVet Securities.
    The trade war between China and the United States has put
the Federal Reserve in a tough spot as policymakers have cited
its disruption of global business activities as a risk to the
domestic economy. 
    On Friday, Fed Chair Jerome Powell said the central bank
would "act as appropriate" to sustain the longest-ever U.S.
economic expansion. But he did not pledge that the Fed was ready
to embark on a series of interest rate cuts.
    Interest rates futures implied traders expect the Fed to
lower rates by a quarter point at its Sept. 17-18 policy
meeting, following its first rate decrease since 2008 in July. 
    Fed funds contracts suggested the Fed would cut rates at
least one more time after September, CME Group's FedWatch
program showed.
    On the data front, domestic orders for durable goods
unexpectedly rose in July but shipments fell by the most in
nearly three years, suggesting capital investment remained
sluggish.
    The U.S. Treasury will sell $113 billion in fixed-rate debt
supply this week, starting with a $40 billion auction of
two-year notes on Tuesday.
    On the open market, yields on two-year notes fell
as low as 1.449%, their lowest since September 2017. They
subsequently moved up to 1.545%, up 1.60 basis point.
    Ten-year Treasury yields were 1.5331.532%,
marginally higher on the day, rebounding from a three-year low
of 1.443% set earlier on Monday.
    The spread between two-year and 10-year yields
 turned positive with a recovery in U.S. stock
index futures. It was inverted earlier at -1.7 basis points.
    The three major Wall Street stock indexes were up nearly 1%
in midday U.S. trading.
August 26 Monday 12:36PM New York / 1636 GMT
                               Price                  
 US T BONDS SEP9               165-13/32    -4/32     
 10YR TNotes SEP9              130-232/256  -2/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9525       1.9943    0.030
 Six-month bills               1.84         1.8877    0.018
 Two-year note                 100-101/256  1.5412    0.012
 Three-year note               100-32/256   1.4567    0.008
 Five-year note                101-152/256  1.4139    0.005
 Seven-year note               102-160/256  1.4749    0.002
 10-year note                  100-220/256  1.5317    0.005
 30-year bond                  104-244/256  2.0286    0.005
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       -1.10        -1.20     
 30-year vs 5-year yield       61.20        0.60      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -1.75         0.00    
 spread                                               
 U.S. 3-year dollar swap        -3.75         0.00    
 spread                                               
 U.S. 5-year dollar swap        -5.50         0.25    
 spread                                               
 U.S. 10-year dollar swap       -8.75         0.50    
 spread                                               
 U.S. 30-year dollar swap      -39.50         0.50    
 spread                                               
 
    

    
 (Reporting by Richard Leong in New York and Dhara Ranasinghe in
LONDON; Editing by Thyagaraju Adinarayan,  Steve Orlofsky and
Dan Grebler)
  
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