December 3, 2018 / 7:21 PM / 9 days ago

TREASURIES-Yields fall, curve flattens as trade deal boost fades

 (Recasts with market move, adds quotes, updates prices)
    * U.S., China agree to hold off on new tariffs
    * Three-year, five-year yield curve inverts
    * Bond market to close Wednesday to mourn President Bush

    By Karen Brettell
    NEW YORK, Dec 3 (Reuters) - Benchmark U.S. Treasury yields
fell back below 3 percent on Monday, the yield flattened and the
curve between three-year and five-year notes inverted for the
first time since 2007, as risk appetite sparked by a U.S., China
trade agreement faded.
    Yields rose earlier after a deal between the U.S. and China
to hold off on new tariffs boosted stocks and reduced demand for
safe haven U.S. debt.
    Stocks pared gains and Treasury yields fell, however, as
investors focused on continuing trade tensions between the
countries.
    ”Some of the exuberance is fading off a little bit as people
digest the news and understand that we’re still a ways away from
having any real deal in place,” said Zach Griffiths, an interest
rate strategist at Wells Fargo in Charlotte, North Carolina.
    Benchmark 10-year notes             gained 7/32 in price to
yield 2.988 percent, after getting as low as 2.986 percent, the
lowest since Sept. 18.
    The yield curve between two-year and 10-year notes
               flattened to 16 basis points, the flattest in
over a decade.
    The curve between three-year and five-year notes
              inverted to a low of negative 0.70 basis points
for the first time since 2007. It is the first part of the
Treasury yield curve to invert since the financial crisis,
excluding very short-dated debt.
    The highly watched two-year, 10-year part of the yield curve
is likely to follow suit, though an inversion between two-year
and five-year notes may occur first, said Ian Lyngen, head of
U.S. rates strategy at BMO Capital Markets in New York.
    The two-year, 10-year yield curve is a key focus for
investors as an inversion is seen as predictor of a U.S.
recession.
    The yield curve has flattened as continuing interest rate
hikes send short-dated yields higher, while longer-dated
Treasuries are supported by tepid inflation and slowing global
growth.
    The Federal Reserve is widely expected to raise rates at its
meeting on Dec. 18-19. However, interest rate futures traders
are now pricing in only one rate increase during 2019, below Fed
projections of three, according to the CME Group’s FedWatch
Tool.
    Fed Chairman Jerome Powell was scheduled to testify on
Wednesday to a congressional Joint Economic Committee, but the
hearing was postponed because of a national day of mourning for
U.S. President George H.W. Bush, who died on Friday.
            
    No new date for the rescheduled testimony has been
announced.             
    Stock and bond markets will be closed on Wednesday.

  
 
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