August 15, 2019 / 2:55 PM / 11 days ago

TREASURIES-U.S. 30-year yields drop to fresh record low below 2%

    * U.S. retail sales rise, initial claims weaker than
expected
    * U.S. yield curve steepens a bit
    * U.S. 10-year yields fall to three-year low

 (Recasts, adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Aug 15 (Reuters) - U.S. 30-year Treasury yields
fell to a record low below 2% and benchmark 10-year notes
dropped to a three-year trough on Thursday amid persistent
worries about global trade tensions and economic slowdowns
around the world.
    A day after inverting, the U.S. yield curve steepened a
little. Curve inversion, which occurs when long-term yields dip
below short-term ones, is widely considered a warning that the
economy is headed for recession.
    "I don't think we have seen a bottom in yields yet," said
Gary Pzegeo, head of fixed income at CIBC Private Wealth
Management, in Boston.
    "We'll likely have a reaction from the Federal Reserve at
the next meeting. That could be something that fuels further
moves lower in parts of the yield curve depending on how
aggressive a stance they take." 
    Data showing U.S. retail sales increasing by more than
expected last month pushed yields a little higher from their
lows. The retail numbers suggested fairly robust consumer
spending that should help ease worries about a potential U.S.
recession.
    U.S. retail sales rose 0.7% in July. Economists polled by
Reuters had forecast retail sales would rise 0.3%. Excluding
automobiles, gasoline, building materials and food services,
retail sales jumped 1.0% last month after advancing by an
unrevised 0.7% in June.
    Other economic reports were not so upbeat, with initial
jobless claims worse than expected and the Philadelphia Federal
Reserve business conditions data having mixed details.

    But the market's focus has been on retail sales.
    In morning trading, yields on the U.S. benchmark 10-year
Treasury note were last down at 1.558%, from 1.581%
late on Wednesday.
    Yields on 30-year bonds, which fell earlier from fresh
record lows at 1.941%, were last at 2.0% from 2.027%
on Wednesday.
    At the short end of the curve, U.S. 2-year yields fell to
1.54% from Wednesday's 1.577%.
    The spread between 2-year and 10-year note yields widened a
bit on Thursday at 1.8 basis points.
    Wednesday's inversion of this yield curve roiled financial
markets because of implications about a possible recession.
    Lewis Alexander, chief U.S. economist at Nomura, said the
probability of recession has increased, but was not at an acute
level. He cited mitigating factors such as the fact that many of
the risks to the U.S. economy are from outside the country,
although that didn't make it immune to external shocks.
    "At this point, we think the risk of a U.S. recession over
the next 12 months is somewhat elevated because the economy is
slowing and because of a range of risks," Alexander said.
    
      August 15 Thursday 10:32 AM New York / 1432 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.8775       1.9178    -0.041
 Six-month bills               1.8525       1.9011    -0.011
 Two-year note                 100-102/256  1.5424    -0.035
 Three-year note               100-8/256    1.4893    -0.030
 Five-year note                101-92/256   1.4646    -0.023
 Seven-year note               102-92/256   1.5163    -0.017
 10-year note                  100-152/256  1.5606    -0.020
 30-year bond                  105-140/256  2.0031    -0.024
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -0.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap        -3.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap        -6.75         0.00    
 spread                                               
 U.S. 10-year dollar swap      -12.00        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -41.00        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama and Bernadette Baum)
  
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