* China grew at slowest pace in 28 years in 2018 * Huawei's CFO arrest stokes U.S.-China trade tension * U.S. existing home sales fall to three-year low in December * U.S. rebuffs offer from China on initial trade talks -FT (Updates market action, adds quote) By Richard Leong NEW YORK, Jan 22 (Reuters) - U.S. Treasury yields dropped on Tuesday as investors shifted some cash back into the bond market, prompted by worries over slowing global growth and trade tensions between China and the United States. A record-long U.S. government shutdown also fed safe-haven demand for Treasuries, with benchmark 10-year yields retreating from three-week peaks set last week. One of the hurdles to Washington and Beijing resolving their trade spat is the case of Meng Wanzhou, executive of Chinese technology giant Huawei, who was arrested on Dec. 1 in Vancouver for violating U.S. sanctions on Iran. The United States will proceed with the formal extradition of Wanzhou, Canada's ambassador to the United States David MacNaughton told the Globe and Mail paper on Monday. Beijing vowed to respond to Washington's actions. The Trump administration has rejected China's offer for preparatory trade talks this week before next week's high-level negotiations, according to the Financial Times, citing people briefed on the talks. "The U.S.-China trade situation is not going to be easily resolved," said Robert Tipp, chief investment strategist at PGIM Fixed Income in Newark, New Jersey. In addition to trade tensions with the U.S., China is seeking to combat weakening domestic growth that slowed to 6.6 percent in 2018, its lowest annual level since 1990. The United States is facing its own economic predicament. Domestic home resales tumbled 6.4 percent to an annualized 4.99 million units in December, the slowest rate since November 2015. Economists also expect a drag on U.S. growth in the first quarter from the federal government shutdown which is entering its second month. "The longer the shutdown goes, the worse the economic impact," Jonathan Cohn, interest rate strategist at Credit Suisse in New York, said. The struggles of the world's two biggest economies, together with those in Europe and some emerging markets, led the International Monetary Fund on Monday to downgrade its view on global growth in 2019 and 2020 to 3.5 percent and 3.6 percent, respectively. The yield on benchmark 10-year Treasury notes was 2.737 percent, down 4.5 basis points from Friday's close. It reached a three-week peak at 2.799 percent on Friday. U.S. financial markets were shut on Monday for the Martin Luther King Jr. holiday. The futures market recorded a couple of big blocks of purchases in five-year and ultra bond contracts, underscoring a revived demand for Treasuries after last week's selling, traders and analysts said. Tuesday, Jan. 22 at 1528 EST (2028 GMT): Price US T BONDS MAR9 145-10/32 25/32 10YR TNotes MAR9 121-136/256 12/32 Price Current Net Yield Change (pct) (bps) Three-month bills 2.355 2.4011 -0.003 Six-month bills 2.4325 2.496 -0.005 Two-year note 99-217/256 2.5807 -0.031 Three-year note 99-214/256 2.5575 -0.044 Five-year note 100-62/256 2.5722 -0.046 Seven-year note 99-224/256 2.6447 -0.048 10-year note 103-80/256 2.7374 -0.045 30-year bond 106-36/256 3.0594 -0.037 YIELD CURVE Last (bps) Net Change (bps) 10-year vs 2-year yield 15.70 -1.15 30-year vs 5-year yield 48.70 1.40 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 14.75 spread U.S. 3-year dollar swap 11.75 spread U.S. 5-year dollar swap 8.25 -0.50 spread U.S. 10-year dollar swap 3.00 -0.50 spread U.S. 30-year dollar swap -18.75 -1.00 spread (Reporting by Richard Leong; Editing by Bernadette Baum and Susan Thomas)
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