July 11, 2018 / 4:43 PM / 2 months ago

TREASURIES-U.S. yields slip as U.S.-China trade dispute intensifies

    * 10-year auction scheduled for 1 p.m. EDT (1700 GMT)
    * Treasury prices gained in risk-off open after tariff
announcement

 (Recasts, updates yields)
    By James Thorne
    NEW YORK, July 11 (Reuters) - U.S. yields slipped on
Wednesday on growing trade tension between China and the U.S.,
while the yield curve hit its flattest level in 11 years, with
traders focused on an afternoon auction for 10-year notes.
    The Treasury auction for $22 billion in 10-year notes is
scheduled for 1:00 p.m. EDT (1700 GMT), and follows weak demand
for the sale of 3-year notes on Tuesday. An additional $14
billion in 30-year bonds will be offered on Thursday.
    "Once we get past the auctions and start to assess what’s
going on with the risks to the real economy, I think the curve
will continue to grind flatter," said Ian Lyngen, head of U.S.
interest rates strategy at BMO Capital Markets in New York.
    The spread between 5-year and 30-year Treasuries dipped
below 19 basis points for the first time since 2007. The spread
between 2-year and 10-year notes also touched a fresh low at
26.29 basis points.
    Investors sought safety after the Trump administration
raised the stakes in a trade dispute with Beijing, threatening
10 percent tariffs on $200 billion of Chinese goods.

    "The big story is the new round of tariffs and more
importantly the real impact for the economy," Lyngen said.
    U.S. benchmark 10-year yields were 1.7 basis
points lower at 2.856 percent, and 30-year bonds
were quoted at 2.955 percent at 12:24 p.m. EDT (1624 GMT).
    CPI data will be released on Thursday at 8:30 a.m. EDT (1230
GMT). Economists polled by Reuters expect year-over-year core
inflation to be 2.3 percent for June, compared with 2.2 percent
in May. 
    
July 11 Wednesday 12:24PM New York / 1624 GMT
                               Price                  
 US T BONDS SEP8               145-7/32     7/32      
 10YR TNotes SEP8              120-40/256   5/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.9375       1.9741    -0.003
 Six-month bills               2.0925       2.1442    -0.005
 Two-year note                 99-214/256   2.5858    -0.008
 Three-year note               99-214/256   2.6823    -0.011
 Five-year note                99-102/256   2.7553    -0.017
 Seven-year note               99-136/256   2.8245    -0.017
 10-year note                  100-40/256   2.8564    -0.017
 30-year bond                  103-88/256   2.9555    -0.016
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       26.90        -0.75     
 30-year vs 5-year yield       20.00        -0.90     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        23.50        -1.25    
 spread                                               
 U.S. 3-year dollar swap        19.75        -2.00    
 spread                                               
 U.S. 5-year dollar swap        14.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap        7.00        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -3.50         0.00    
 spread                                               
 
    
 (Reporting by James Thorne
Editing by Susan Thomas)
  
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