June 22, 2018 / 7:30 PM / 24 days ago

TREASURIES-U.S. yields little changed as market mood still uncertain

    * U.S.-China trade tension still major factor in Treasuries
    * U.S. curve steepens, but more bounceback after flattening
trend
    * Calmer European bond markets helping U.S. sentiment

 (Adds comment, updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 22 (Reuters) - U.S. Treasury yields were
little changed on Friday, trading in narrow ranges, as risk
appetite improved a bit with shares on Wall Street higher, but
worries over a trade conflict with China kept investors
cautious.
    "Yields...(are) still lower from a couple of weeks ago and
that's because of the uncertainty on the U.S. trade situation
with China," said Lou Brien, market strategist at DRW Trading in
Chicago.
    Benchmark U.S. 10-year yields were up on Friday, but have
declined on a weekly basis for two straight weeks.
    China kept up its hostile rhetoric with the United States on
Friday, saying through the official China Daily that U.S.
protectionism would hurt its own economy.
    The editorial followed stinging remarks from China's
commerce ministry on Thursday accusing the United States of
being "capricious" over bilateral trade issues.
    "People believe that if we actually go into a trade war, the
economy falls apart and inflation goes down," said Stan Shipley,
strategist, at Evercore ISI in New York. "There is no sign that
scenario has changed with the U.S. and China."
    In afternoon trading, U.S. 10-year yields were up slightly
at 2.9 percent, from Thursday's 2.897 percent.
    U.S. 30-year yields were almost flat at 3.040 percent
, compared with 3.043 percent on Thursday.
    On the short end, U.S. two-year note yields edged up to
2.549 percent, from 2.541 percent late on Thursday.
    A much calmer European bond market - after manic movements
in the previous session - also helped lift U.S. yields, analysts
said.
    Italy's borrowing costs fell on Friday as the government
bond market regained its footing after a sharp sell-off on
Thursday, while the Greek bond market received a boost from a
euro zone debt relief announcement.
    Analysts said the Treasuries market has become more
sensitive to developments in other markets.
    The yield curve continued to steepen, with the  spread
between U.S. 5-year notes and 30-year bonds increasing for a
sixth straight session to as much as 28.7 basis points
. That is the widest gap in more than a week.
    Another yield curve measure, the gap between U.S. two-year
and U.S. 10-year notes, widened as well, to 37.2 basis points
.
    Kim Rupert, managing director for global fixed income at
Action Economics in San Francisco, said the steeper curve is
more of a "giveback" after having flattened for most of the
year.
    A flat yield curve is generally a function of investors
pricing in interest rate hikes by the Federal Reserve. 
    
    June 22 Friday 3:19PM New York / 1919 GMT
                               Price                  
 US T BONDS SEP8               144-2/32     0-3/32    
 10YR TNotes SEP8              119-216/256  -0-4/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.88         1.9148    -0.018
 Six-month bills               2.0425       2.092     -0.018
 Two-year note                 99-232/256   2.5495    0.009
 Three-year note               99-238/256   2.6496    0.003
 Five-year note                99-230/256   2.7719    0.005
 Seven-year note               100-28/256   2.8573    0.002
 10-year note                  99-204/256   2.8986    0.002
 30-year bond                  101-168/256  3.0401    -0.003
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.00        -0.75    
 spread                                               
 U.S. 3-year dollar swap        23.00        -0.25    
 spread                                               
 U.S. 5-year dollar swap        14.50         0.00    
 spread                                               
 U.S. 10-year dollar swap        6.25         0.00    
 spread                                               
 U.S. 30-year dollar swap       -7.75         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler
and Chizu Nomiyama)
  
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