May 8, 2019 / 2:05 PM / 15 days ago

TREASURIES-U.S. yields hit 5-week lows on U.S.-China trade jitters

    * U.S. to sell $27 bln 10-year notes at 1 p.m.
    * U.S. plans higher tariffs on $200 bln of Chinese imports
    * Trump tweets China is coming to the U.S. to make a deal

 (Updates market action, adds quote, table, graphic)
    By Richard Leong
    NEW YORK, May 8 (Reuters) - U.S. Treasury yields fell on
Wednesday with longer-dated yields hitting five-week lows as
investors piled money into low-risk government debt amid an
escalating trade battle between economic giants China and the
United States.
    The pickup in demand for Treasuries will likely support the
rest of this week's $84 billion worth of debt supply for the
government's quarterly refunding, analysts said.
    The U.S. Treasury will sell $27 billion in 10-year notes at
1 p.m. (1700 GMT) following a mediocre three-year note sale on
Tuesday. 
    The United States said it will hike up tariffs on $200
billion worth of Chinese imports to 25% from 10% effective
Friday, ahead of Chinese Vice Premier Liu He's arrival in
Washington for two days of trade talks.
    U.S. officials have accused China of reneging over the past
week on substantial commitments made during months of
negotiations aimed at ending their trade war.
    "It puts a lot of jeopardy that a deal won't get done," said
Glen Capelo, head of U.S. rates at Academy Securities in New
York.
    The abrupt deterioration in relations between the world's
two largest economies and reduced prospects for a trade deal
have rattled investor confidence about prospects for the global
economy and business activities.
    Wall Street's major equity indexes opened lower following
two-day of sharp losses.
    At 9:45 a.m. (1345 GMT), the yields on benchmark 10-year
Treasury notes were down 0 basis point at 2.448%
after hitting a five-week low of 2.426% earlier in the session.
    Treasury yields bounced off their initial lows after U.S.
President Donald Trump said on Twitter China was "now coming to
the U.S. to make a deal."
    In "when-issue" activity, traders expected the upcoming
10-year note to sell at a yield of 2.445%, which
would be the lowest yield for this debt maturity at an auction
since December 2017.
    The Treasury will complete this week's refunding, which
would raise $28.6 billion in fresh cash for the federal
government, with a $19 billion 30-year bond auction on Thursday.
    Meanwhile, the trade flare-up between Beijing and Washington
has increased expectations the Federal Reserve would lower key
lending rates to combat an economic slowdown.
    "This will up the ante for the Fed to move," said Mary Ann
Hurley, vice president of fixed income at D.A. Davidson in
Seattle.
    Interest rates futures implied traders see a
59% chance the Fed would lower its target range on key borrowing
costs by a quarter point to 2.00%-2.25% at its Dec. 10-11
meeting, little changed from late on Tuesday, according to CME
Group's FedWatch program. 
    
  May 8 Wednesday 9:47AM New York / 1347 GMT
                               Price                  
 US T BONDS JUN9               148-24/32    0/32      
 10YR TNotes JUN9              124          -1/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.3775       2.4251    -0.007
 Six-month bills               2.375        2.4372    -0.007
 Two-year note                 99-246/256   2.2702    -0.012
 Three-year note               99-178/256   2.2306    -0.007
 Five-year note                100          2.2499    -0.002
 Seven-year note               100-48/256   2.3457    0.000
 10-year note                  101-136/256  2.4476    0.000
 30-year bond                  102-208/256  2.8589    -0.003
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       17.60        0.75      
 30-year vs 5-year yield       60.80        0.45      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        10.00         0.25    
 spread                                               
 U.S. 3-year dollar swap         6.50         0.00    
 spread                                               
 U.S. 5-year dollar swap         3.50         0.00    
 spread                                               
 U.S. 10-year dollar swap       -2.50        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -25.50        -0.25    
 spread                                               
 

    
 (Reporting by Richard Leong
Editing by Bernadette Baum)
  
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