May 22, 2019 / 2:51 PM / a month ago

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

    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 22 (Reuters) - U.S. Treasury yields fell on
Wednesday, weighed down by worsening trade tensions between the
United States and China after a media report that the Trump
administration is considering limits to Chinese video
surveillance firm Hikvision's ability to buy American
    Investors were also spooked by developments in Britain's
troubled attempt to exit the European Union, fueling declines in
U.S. long-dated yields after hitting one-week highs the previous
    That said, the Federal Reserve will take center stage later
on Wednesday when it releases the minutes of its latest monetary
policy meeting. Analysts though do not expect surprises from the
    But over the last few days, the U.S.-China trade saga has
been at the front and center of bond investors' radar. 
    The New York Times reported late on Tuesday, citing people
familiar with the matter, that the U.S. Commerce Department may
require that U.S. companies obtain government approval to supply
components to Hikvision, limiting the company's access to
technology that helps power its equipment.
    That came after Washington temporarily eased curbs against
Chinese telecommunications equipment maker Huawei Technologies
    "These days we have been trading a lot on headline risks and
right now, we see renewed trade concerns with China," said
Justin Lederer, Treasury trader at Cantor Fitzgerald in New
    The Chinese government's top diplomat, Wang Yi, said on
Wednesday that U.S. pressure on Chinese firms such as Huawei is
economic bullying and a move to try to prevent the country's
development process.
    Aside from China, UK worries continued to help boost U.S.
bond prices after Prime Minister Theresa May's final ploy to win
support for her Brexit plan failed to win over either opposition
lawmakers or many in her own party.
    In late morning trading, U.S. 10-year note yields fell to
2.398% from 2.426% late on Tuesday.
    Yields on U.S. 30-year bonds slid to 2.818% from
2.842% on Tuesday.
    On the short end of the curve, U.S. 2-year yields were down
at 2.228% from Tuesday's 2.258%.
    With China and Brexit in the background, the Fed minutes
will be scrutinized for clues about where U.S. interest rates
are headed.
    Jim Vogel, senior rates strategist, at FTN Financial in
Memphis, Tennessee said given higher rates that followed Fed
Chairman Jerome Powell's podium appearance three weeks ago,
investors will be on alert for discussions or disagreements that
might dent the "no insurance cut" takeaway that started rates
    But if the Fed stands pat, "look for a flatter curve with
firmer prices just past the 5-year," Vogel said. 
      May 22 Wednesday 10:35 AM New York / 1435 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.33         2.3764    -0.017
 Six-month bills               2.35         2.4179    0.000
 Two-year note                 100-8/256    2.233     -0.025
 Three-year note               99-218/256   2.1766    -0.024
 Five-year note                100-62/256   2.1978    -0.030
 Seven-year note               100-136/256  2.2916    -0.031
 10-year note                  99-204/256   2.398     -0.028
 30-year bond                  101-36/256   2.8184    -0.024
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         5.75         0.50    
 U.S. 3-year dollar swap         4.25         0.50    
 U.S. 5-year dollar swap         1.00         0.50    
 U.S. 10-year dollar swap       -4.75         0.25    
 U.S. 30-year dollar swap      -28.00         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Susan Thomas)
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