May 6, 2019 / 7:31 PM / 20 days ago

TREASURIES-U.S. bond yields fall on U.S.-China trade flare-up

    * Trump threatens to slap more tariffs on Chinese goods 
    * U.S. to sell $84 bln in debt at quarterly refunding
    * Fed's Harker sees softening in inflation as 'transitory'

 (Updates to late U.S. market action)
    By Richard Leong
    NEW YORK, May 6 (Reuters) - U.S. Treasury yields fell on
Monday, as investors favored low-risk government bonds over
stocks and other risky assets due to worries about a global
slowdown stemming from renewed trade tension between China and
the United States. 
    Wall Street's major indexes at one point were down nearly 1%
after U.S. President Donald Trump on Sunday threatened to
increase tariffs on $200 billion of Chinese-made goods to 25%
from 10%, reversing his February decision to hold them at 10% as
the world's two biggest economies were making progress on trade
    Investors fear that derailed trade talks between Washington
and Beijing will touch off a global slowdown, analysts said,
offsetting recent encouraging data on China, Europe and the
United States.
    "It's primarily concern about trade," Jonathan Cohn,
interest rate strategist at Credit Suisse in New York said of
the reason behind the fall in yields. "If a trade deal falls
through, there's more scope for yields to rally."
    In late U.S. trading, the yields on benchmark 10-year
Treasury notes were 2.4998%, down 3 basis points
from late on Friday, while the two-year yields were
2.3107%, down 2.8 basis points.
    The S&P 500 bounced off its initial lows, last down 0.39%   
    Monday's drop in bond yields was mitigated by this week's
Treasury supply and some investor caution in advance of the
government's consumer price report due at 8:30 a.m. (1230 GMT)
on Friday. 
    The U.S. Treasury Department will sell $84 billion in
coupon-bearing debt including $38 billion in three-year notes
 on Tuesday, $27 billion in 10-year notes
 on Wednesday and $19 billion in 30-year bonds
 on Thursday.
    These quarterly debt sales are expected to refund $55.4
billion to bondholders and to raise $28.6 billion in new cash
for the federal government.
    "The risk backdrop is still pretty strong for Treasury
supplies to be taken down smoothly," Cohn said.
    Signs of tame domestic inflation have also bolstered the
case to own longer-dated bonds, analysts said.
    Some Federal Reserve officials said a recent pullback in
price pressure is likely temporary and inflation should move
back toward the central bank's 2% goal.
    Some recent weakness in inflation could be "transitory,"
suggesting no reason to adjust monetary policy at this point,
Philadelphia Fed President Patrick Harker said on Monday.

    The government's consumer price index likely rose 2.1% on an
annual basis in April due to a spike in energy prices, stronger
than the 2.0% pace the month earlier, according to analysts
polled by Reuters.
   Monday, May 6, at 1519 EDT (1919 GMT):
 US T BONDS JUN9               147-26/32    14/32     
 10YR TNotes JUN9              123-164/256  10/32     
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.3725       2.4192    -0.012
 Six-month bills               2.3825       2.4509    -0.005
 Two-year note                 99-227/256   2.3087    -0.030
 Three-year note               99-238/256   2.2746    -0.033
 Five-year note                99-204/256   2.2933    -0.037
 Seven-year note               99-224/256   2.3945    -0.036
 10-year note                  101-20/256   2.4998    -0.030
 30-year bond                  101-216/256  2.9069    -0.019
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       18.50        -0.40     
 30-year vs 5-year yield       61.30        1.85      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        10.25        -0.50    
 U.S. 3-year dollar swap         7.00        -0.50    
 U.S. 5-year dollar swap         4.25        -0.25    
 U.S. 10-year dollar swap       -2.25        -0.50    
 U.S. 30-year dollar swap      -25.25        -1.25    

 (Reporting by Richard Leong
Editing by Chizu Nomiyama, David Gregorio and Susan Thomas)
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