July 3, 2018 / 2:24 PM / 4 months ago

TREASURIES-U.S. yields hold steady as China seeks to calm markets

    * 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

    By Richard Leong
    NEW YORK, July 3 (Reuters) - U.S. Treasury yields were
little changed on Tuesday with the yield curve hovering 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.
    "In the short-term, the comments from China have boosted
stock prices and softened bids for Treasuries," said Larry
Milstein, head of government and agency trading at R.W.
Pressprich & Co. in New York.
    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 despite the Federal
Reserve's signaling further increases in 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.
    The safe-haven demand for bonds has narrowed the spread
between short- and long-dated Treasury yields. Some investors
are worried that 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 9:49 a.m. (1336 GMT), the spread between two-year and
10-year yields contracted to 30.50 basis points
after touching 30.30 basis points, which was the tightest since
August 2007.
    The five-to-30-yield yield gap hit 22.60
basis points, which was the slimmest since July 2007, Reuters
data showed.
    The yield on benchmark 10-year Treasury notes
was down nearly 1 basis point at 2.858 percent, while the
30-year yield was 1 basis point lower at 2.982
percent.
    Trading volume was light for a second day ahead of the U.S.
Independence Day holiday.
    The U.S. bond market will close early at 2 p.m. (1800 GMT)
and will stay shut on Wednesday.
July 3 Tuesday 9:51AM New York / 1351 GMT
                               Price                  
 US T BONDS SEP8               144-31/32    7/32      
 10YR TNotes SEP8              120-32/256   2/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.945        1.9818    0.013
 Six-month bills               2.09         2.1417    0.016
 Two-year note                 99-230/256   2.5527    0.000
 Three-year note               99-240/256   2.6469    0.003
 Five-year note                99-108/256   2.7498    -0.003
 Seven-year note               99-136/256   2.8244    -0.008
 10-year note                  100-32/256   2.8601    -0.007
 30-year bond                  102-200/256  2.9835    -0.007
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       30.50        -1.00     
 30-year vs 5-year yield       23.30        -0.35     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        25.25        -0.75    
 spread                                               
 U.S. 3-year dollar swap        22.50        -0.50    
 spread                                               
 U.S. 5-year dollar swap        14.75        -0.25    
 spread                                               
 U.S. 10-year dollar swap        7.25        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -5.75         0.00    
 spread                                               
 
    
 (Reporting by Richard Leong; Editing by David Gregorio)
  
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