TREASURIES-Yields fall as Hong Kong tension drives investors to safety

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NEW YORK, May 22 (Reuters) - Longer-dated U.S. Treasury yields fell on Friday, as risk sentiment turned sour after Beijing proposed imposing a new security law on Hong Kong, exacerbating China’s strained relationship with the United States.

U.S. 10-year and 30-year yields slid to one-week lows, while the yield curve flattened for a fourth straight session.

Chinese plans to impose national security laws on Hong Kong - announced on Friday in Beijing - could see mainland intelligence agencies set up bases there, raising fears of direct law enforcement and what the United States branded a “death knell” for the city’s autonomy.

“The markets are now paying close attention to some of the pre-coronavirus activity or headlines such as those related to Hong Kong and China, and now that’s weighing on the market a little bit in terms of pushing yields lower,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Devon, Pennsylvania.

In afternoon trade, the U.S. 10-year yield fell to 0.657% from 0.677% late on Thursday, after earlier falling to a one-week low of 0.627%. It has fallen 8.5 basis points since Monday’s close.

The 30-year yield was at 1.371%, down from 1.398% on Thursday. Earlier, 30-year yields dropped to a one-week trough of 1.329%.

The 20-year yield was also lower at 1.127%.

At the short end of the curve, two-year yields were last at 0.170%, a tick higher from yesterday’s close.

The yield curve flattened further on Friday, with the spread between the 10- and two-year narrowing to 48.70 basis points .

Overall, traders expected Treasuries to remain range-bound absent a vaccine or treatment for the novel coronavirus.

“The technical profile in the U.S. rates market offers very little to inspire one to expect a defining trading session anytime soon,” said BMO Capital in a research note.

“This brings us well into June at this point and the prospects for a breakout dwindle the longer 10s remain stubbornly between 54 basis points and 78 basis points.” (Reporting by Gertrude Chavez-Dreyfuss and Kate Duguid Editing by Chizu Nomiyama)