July 3, 2018 / 3:59 PM / 2 months ago

TREASURIES-U.S. yields fall, curve flattest in over a decade

    * Beijing pledges to support reeling yuan
    * Trade tensions keep U.S. yield curve near 11-year lows
    * U.S. bond market to close early Tuesday, shut Wednesday

 (Adds quote, updates yields)
    By James Thorne
    NEW YORK, July 3 (Reuters) - U.S. Treasury yields moved
lower on Tuesday, pinning the yield curve at its flattest level
in nearly 11 years as China pledged to keep its currency stable.
    The yuan fell to an 11-month low against the dollar
 as trade tensions grew between the United States and
China, the world's two biggest economies. The Trump
administration is prepared to impose tariffs on $34 billion of
Chinese goods on July 6. Beijing has said it will respond with
duties on American-made imports.
    Fears of a full-blown global trade war have spurred bets
that slower global growth and inflation would mean that
longer-dated U.S. yields would not rise much even if the Federal
Reserve hikes short-term interest rates, traders and analysts
said.
    "We have the safety bids on the long-end of the yield curve
due to trade concerns," Milstein said.
    Safe-haven demand for bonds has narrowed the spread between
short- and long-dated Treasury yields. Some investors are
worried short-term yields could rise above long-term ones. This
phenomenon, known as a curve inversion, has happened about 12 to
18 months before the past five U.S. recessions.
    At 11:40 a.m.(1540 GMT), the spread between two-year and
10-year yields contracted to 30.40 basis points
after touching 29.59 basis points, which was the tightest since
August 2007.
    The five-to-30-yield yield gap hit 22.60
basis points, the slimmest since July 2007, Reuters data showed.
    After opening the day flat, yields fell slightly as the
session progressed. 
    “There’s definitely some short-covering for the holiday,”
said Justin Lederer, Treasury analyst at Cantor Fitzgerald in
New York. 
    Low trading volume ahead of the U.S. July Fourth holiday
left the Treasury market more sensitive to buying pressure,
Lederer said.
    The yield on benchmark 10-year Treasury notes
was down 2 basis points at 2.838 percent, while the 30-year
yield was 2 basis points lower at 2.967 percent.
    The U.S. bond market will close early at 2 p.m. (1800 GMT)
and will stay shut on Wednesday.
  July 3 Tuesday 11:40AM New York / 1540 GMT
                               Price                  
 US T BONDS SEP8               145-9/32     17/32     
 10YR TNotes SEP8              120-76/256   7/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.945        1.9818    0.013
 Six-month bills               2.0775       2.1287    0.003
 Two-year note                 99-238/256   2.5364    -0.017
 Three-year note               100          2.6247    -0.019
 Five-year note                99-132/256   2.7295    -0.023
 Seven-year note               99-164/256   2.807     -0.025
 10-year note                  100-72/256   2.8419    -0.025
 30-year bond                  103-24/256   2.968     -0.023
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       30.40        -1.10     
 30-year vs 5-year yield       23.70        0.05      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        25.50        -0.50    
 spread                                               
 U.S. 3-year dollar swap        23.00         0.00    
 spread                                               
 U.S. 5-year dollar swap        15.00         0.00    
 spread                                               
 U.S. 10-year dollar swap        7.50         0.00    
 spread                                               
 U.S. 30-year dollar swap       -5.75         0.00    
 spread                                               
 


    
 (Reporting by James Thorne and Richard Leong; Editing by David
Gregorio)
  
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