May 14, 2018 / 7:33 PM / 6 months ago

TREASURIES-U.S. yields edge up as trade tensions ease

    * Yields rise as trade tensions with China ease
    * U.S. 2-year yield climb to highest since August 2007

 (Updates analyst quotes, trade comment, yields, table)
    By Kate Duguid
    NEW YORK, May 14 (Reuters) - Treasury yields edged up on
Monday, extending weekend gains as trade tensions eased a day
after President Donald Trump pledged to help Chinese
telecommunications company ZTE Corp, which has been penalized
for violating U.S. sanctions with Iran. 
    U.S. Commerce Secretary Wilbur Ross on Monday confirmed that
the office was exploring "alternative remedies" to punish ZTE
following the president's tweet on Sunday, which said too many
jobs in China had been lost.
    The telecommunications company had shut down its main
operations after the Commerce Department banned U.S. companies
from selling components to ZTE for seven years after it
illegally shipped goods made with U.S. parts to Iran and North
Korea.
    Monday's moves were modest, with the 2-year note yield
 gaining less than a basis point. Nevertheless, its
peak at 2.552 percent in morning trade was the highest it has
been since August 2008. The benchmark 10-year government yield
 remained range-bound, last at 2.993 percent, just
below the 3 percent level it broke through more than two weeks
ago for the first time since January 2014. 
    "We’re just bopping around in a range on either side of 3
percent. If there was anything (driving yields up), it was maybe
the comments from Trump over the weekend concerning trade with
China that may have taken a bit of the concern out of the
market," said Lou Brien, market strategist at DRW Trading in
Chicago. 
    The 2-year yield, which is more sensitive to traders' views
on Federal Reserve policy, has risen 6.4 basis points this year,
driving the yield curve flatter.
    Traders expect the U.S. central bank will raise key
overnight borrowing costs at least two more times in 2018, with
the next hike likely at its June 12-13 policy meeting.
    A "June (rate hike) is pretty much baked in," said John
Canavan, market strategist at Stone & McCarthy Research
Associates. "We are still expecting to see the Fed tighten
further into 2019."
    Traders' view of more rate hikes, together with
softer-than-expected data on jobs and inflation in April, has
caused investors to increase their curve flattening positions,
where they favor longer-dated Treasuries over shorter-dated
issues, analysts said.
    The spread between 5-year and 30-year Treasury yields
 was 27.2 basis points, roughly 1 basis point
wider from late Friday. The gap had narrowed slightly below 26
basis points earlier Monday, which was the slimmest since July
2007, Tradeweb data showed.
    
      May 14 Monday 3:20PM New York / 1920 GMT
                               Price                  
 US T BONDS JUN8               142-25/32    -0-11/32  
 10YR TNotes JUN8              119-60/256   -0-44/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.865        1.8994    -0.006
 Six-month bills               2.0125       2.0608    0.010
 Two-year note                 99-172/256   2.5474    0.008
 Three-year note               99-200/256   2.7014    0.008
 Five-year note                99-136/256   2.8519    0.014
 Seven-year note               99-120/256   2.9599    0.020
 10-year note                  98-252/256   2.9933    0.022
 30-year bond                  99-252/256   3.1258    0.015
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.75        -1.25    
 spread                                               
 U.S. 3-year dollar swap        15.50        -1.00    
 spread                                               
 U.S. 5-year dollar swap         8.25        -0.50    
 spread                                               
 U.S. 10-year dollar swap        2.50        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -9.25         0.25    
 spread                                               
    

 (Reporting by Richard Leong and Kate Duguid; editing by Nick
Zieminski and Jonathan Oatis)
  
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