November 22, 2019 / 8:10 PM / 16 days ago

TREASURIES-U.S. yields mixed as China trade worries offset upbeat data

    * U.S. manufacturing, services data shows increase
    * Bond market still focused on trade headlines
    * Trump says trade deal 'potentially very close'
    * U.S. yield curve flattens again

 (Recasts, adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 22 (Reuters) - U.S. Treasury yields were mixed
on Friday in choppy trading, as data showing a pickup in
manufacturing and services activity was counterbalanced by
persistent uncertainty related to trade negotiations with China.
    U.S. short-term yields edged higher, benefiting from strong
economic reports, while those on long-term debt were flat to
slightly lower.
    "There always seems to be caveats preventing the U.S. and
China from getting a trade deal done," said Lou Brien, market
strategist, at DRW Trading in Chicago. 
    "The market reacts to favorable headlines, then falls back
once they see the caveats. There's just confusion," he added.
    On Friday, President Donald Trump said a trade deal with
China is "potentially very close" and that he stands with both
the people of Hong Kong and Chinese President Xi Jinping amid
massive protests in Hong Kong.
    There are headwinds, however. 
    The U.S. Federal Communications Commission (FCC) on Friday
voted 5-0 to designate China's Huawei and ZTE as national
security risks, barring their U.S. rural carrier customers from
tapping an $8.5 billion government fund to purchase equipment.

    The upcoming Hong Kong elections over the weekend and a U.S.
Congress bill that supports the protesters are adding to the
trade tension.
    In afternoon trading, U.S. 10-year note yields 
were unchanged at 1.772%.
    Yields on 30-year bonds, on the other hand, were
lower at 2.221%, from Thursday's 2.231%.
    On the short end of the curve, U.S. two-year yields rose to
1.627%, from 1.605% on Thursday.
    U.S. yields briefly rose earlier after data showed U.S.
manufacturing output accelerated in November to its fastest pace
in seven months. Services activity also picked up more than
expected, according to an IHS Markit survey, a sign of the
continued resilience of the U.S. economy in the face of the
trade war and other headwinds.
    "There's not a lot of conviction to these moves. The market
is still trading off China headlines," said Justin Lederer,
Treasury trader at Cantor Fitzgerald in New York.
    "We're back 25 basis points on the 10s from two weeks ago.
If the market sees a done deal in trade and there are no
problems in the world, the 10-year yield would be closer to 2%,"
he said.
    After steepening on Thursday, the yield curve flattened
again on Friday amid a standstill in U.S.-China trade talks. The
spread between the two-year and 10-year note yields narrowed to
15.3 basis points. The curve has flattened in
seven of the last eight sessions.
    
      November 22 Friday 11:17AM New York/ 1617 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.54         1.5715    -0.006
 Six-month bills               1.545        1.5828    0.003
 Two-year note                 99-202/256   1.6112    0.006
 Three-year note               100-20/256   1.5979    0.005
 Five-year note                99-114/256   1.6174    0.001
 Seven-year note               99-126/256   1.7029    -0.002
 10-year note                  99-220/256   1.7654    -0.007
 30-year bond                  103-128/256  2.2146    -0.016
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -2.25         0.00    
 spread                                               
 U.S. 3-year dollar swap        -5.00         0.00    
 spread                                               
 U.S. 5-year dollar swap        -7.50         0.00    
 spread                                               
 U.S. 10-year dollar swap      -11.25         0.25    
 spread                                               
 U.S. 30-year dollar swap      -38.00         1.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Cynthia
Osterman)
  
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