October 22, 2019 / 3:23 PM / 23 days ago

TREASURIES-U.S. yields slide on Brexit, China trade uncertainty

    * UK's Johnson to push for election if Brexit timetable
rejected 
    * Chinese vice foreign minister says progress made in trade
talks
    * Markets await U.S. two-year note auction

 (Updates prices, adds U.S. data, Treasury table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 22 (Reuters) - U.S. long-dated Treasury yields
dropped from five-week highs on Tuesday, in line with a global
trend, as investors turned cautious and awaited further news on
Britain's eventual exit from the European Union and more details
about the U.S.-China trade deal.
    German Bund and UK 10-year Gilt
yields fell on the day, their weakness spilling over to the
Treasury market. 
    Volume, however, was thin overall in recent sessions and
traders were inclined not to read too much to this week's moves.
    "The market is still largely waiting on Brexit and trade
news," said Gennadiy Goldberg, senior rates strategist, at TD
Securities in New York. "I don't think there's a lot of
conviction one way or the other." 
    British Prime Minister Boris Johnson said on Tuesday he
would end an attempt to win parliamentary approval for his
Brexit legislation and instead press for an election if
lawmakers reject his timetable. "I will in no way allow months
more of this."
    In China, Vice Foreign Minister Le Yucheng said on Tuesday
both China and the United States have achieved some progress in
their trade talks and any problem could be resolved as long as
both sides respected each other.
    But he also warned China would never trade away its core
interests or allow other countries to undermine its security.

    The two countries have been working to resolve their trade
dispute, with the United States announcing a "phase 1" deal with
China on trade matters and suspending a scheduled tariff hike
for October.
    In late morning trading, U.S. 10-year note yields
 fell to 1.78% from 1.792% late on Monday. Earlier in
the global session, 10-year yields hit a five-week high of
1.81%.
    Yields on 30-year bonds were down at 2.261%,
from 2.284% on Monday, touching a five-week peak earlier of
2.299%.
    On the short-end of the curve, U.S. two-year yields were
steady at 1.610%, from Monday's 1.615%.
    U.S. yields fell further after U.S. existing home sales came
in below the consensus forecast, although the details suggested
a more stable housing market than the headlines suggested.

    Markets are also looking to the Treasury's $40 billion
two-year note auction later on Tuesday. 
    Analysts at BMO Capital Markets in a research note wrote
that as the U.S. 2-year tenor is particularly sensitive to the
Federal Reserve's monetary outlook, demand at the auction will
be a crucial metric in determining appetite to buy at this
point.
   "The proximity of this afternoon's 2-year auction to next
week's FOMC (Federal Open Market Committee) meeting introduces
some risk around the willingness to buy ahead of what could be a
hawkish cut," BMO said.
    The bank, however, added that even before the Fed began
cutting, there has been an "undeniably solid trend" in 2-year
auctions this year, as it expects decent demand at the auction.
    
      October 22 Tuesday 11:09AM New York / 1509 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.625        1.659     0.003
 Six-month bills               1.595        1.6348    -0.018
 Two-year note                 99-203/256   1.6088    -0.006
 Three-year note               99-96/256    1.5907    -0.002
 Five-year note                99-136/256   1.599     -0.005
 Seven-year note               99-152/256   1.6872    -0.010
 10-year note                  98-160/256   1.7782    -0.014
 30-year bond                  99-196/256   2.2608    -0.023
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         1.75        -0.75    
 spread                                               
 U.S. 3-year dollar swap        -0.50        -1.25    
 spread                                               
 U.S. 5-year dollar swap        -2.00        -1.00    
 spread                                               
 U.S. 10-year dollar swap       -7.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -37.00        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama and Richard Chang)
  
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