August 17, 2018 / 7:53 PM / 4 months ago

TREASURIES-U.S. yields slip on Turkey, but U.S. China-trade talks spur optimism

    * Treasuries rise on optimism over U.S.-China trade talks
    * U.S. warns of more sanctions on Turkey
    * Turkish lira, other EM currencies fall

 (Recasts, adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Aug 17 (Reuters) - U.S. Treasury yields were
slightly lower on Friday, as risk aversion worsened slightly
after the Turkish lira weakened again following warnings of
further U.S. tariffs, reigniting worries about an emerging
market currency crisis.
    But yields came off their lows after The Wall Street Journal
reported Friday afternoon that Chinese and U.S. negotiators are
drawing up a road map for their trade talks next week. Both
countries aim to resolve an escalating tariff war.
    Following the report, U.S. stocks rallied.
    A Chinese delegation led by Vice Minister of Commerce Wang
Shouwen will meet U.S. representatives, China's Ministry of
Commerce said on Thursday.
    The world's two largest economies are due to impose tariffs
on billions of dollars of each other's goods beginning Aug. 23,
on top of levies that took effect on July 6.
    "The pending talks have taken some of the bid out of
Treasuries," said Kim Rupert, managing director of global fixed
income at Action Economics in San Francisco.
    "I think it's more of the same that we have seen all spring
where the president puts out some bombastic comments or
policies, but they seemed to be just negotiating tactics. I do
think we will see some resolution on this," he said.
    With China's economy already showing signs of slowing down
based on recent data, it can ill afford trade tariffs from the
United States, making a resolution of their dispute in China's
best interest, analysts said.
    In afternoon trading, U.S. 10-year yields slipped to 2.869
percent, down from Thursday's 2.871 percent.
    The 30-year yields were down at 3.027 percent,
from 3.032 percent late Thursday. Earlier, 30-year yields fell
as low 3.003 percent, the weakest in four weeks.
    On the front end, U.S. 2-year yields fell to 2.616 percent
 from 2.620 percent on Thursday.
    The yield curve further flattened on Friday, with the spread
between U.S. 5-year notes and U.S. 30-year bonds tightening to
27 basis points.
    A flatter yield curve reflects diminished risk appetite amid
global tension.
    Earlier, yields were much lower after the United States late
on Thursday warned Turkey to expect more economic sanctions
unless it hands over detained American pastor Andrew Brunson, as
relations between the two countries took another turn for the
worse.
    Following those threats, the Turkish lira fell 5.2 percent
against the U.S. dollar to 16 cents.
    Other emerging market currencies fell as well, such as the 
South African rand, the Mexican peso and the
Russian ruble. 
    
      August 17 Friday 3:38PM New York / 1938 GMT
                               Price                  
 US T BONDS SEP8               144-20/32    0-3/32    
 10YR TNotes SEP8              120-72/256   0-4/256   
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.005        2.0427    -0.021
 Six-month bills               2.175        2.2292    -0.001
 Two-year note                 100-4/256    2.6163    -0.004
 Three-year note               100-44/256   2.6896    0.000
 Five-year note                100          2.7498    0.002
 Seven-year note               100-92/256   2.8175    0.000
 10-year note                  100-12/256   2.8695    -0.002
 30-year bond                  99-132/256   3.0247    -0.007
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.50         0.25    
 spread                                               
 U.S. 3-year dollar swap        18.00        -0.25    
 spread                                               
 U.S. 5-year dollar swap        14.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap        7.00         0.25    
 spread                                               
 U.S. 30-year dollar swap       -6.75         0.25    
 spread                                               
 
 (Editing by Bernadette Baum and Leslie Adler)
  
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