July 17, 2019 / 6:44 PM / a month ago

TREASURIES-Yields fall on U.S.-China trade concerns, weak housing

 (Adds Beige Book, updates prices)
    * Housing permits fall to two-year low in June
    * Expected Fed rate cut caps U.S. yield increases
    * Fed says economy growing at a "modest" rate 

    By Karen Brettell
    NEW YORK, July 17 (Reuters) - U.S. Treasury yields fell on
Wednesday as concerns about the U.S.-China trade war boosted
demand for safe haven debt and after data showed weakness in the
U.S. housing market.
    U.S. President Donald Trump said on Tuesday the United
States still had a long way to go to conclude a trade deal with
China but could impose tariffs on an additional $325 billion
worth of Chinese goods if it needed to do so.             
    The United States could also face Chinese sanctions for not
fully complying with a World Trade Organization ruling, WTO
appeals judges said on Tuesday.             
    The Federal Reserve is seen as certain to cut rates when it
meets later this month, as the U.S.-China trade war weighs on
the global economic outlook.             
    U.S. data on Wednesday showed homebuilding fell for a second
straight month in June and permits dropped to a two-year low
despite lower mortgage rates. Building permits tumbled 6.1% to a
rate of 1.220 million units in June, the lowest since May 2017.
            
    "The housing starts were a little weaker but the building
permits were definitely significantly weaker," said Justin
Lederer, an interest rates strategist at Cantor Fitzgerald in
New York.
    Benchmark 10-year notes             gained 17/32 in price to
yield 2.06%, down from 2.12% late on Tuesday.
    Yields have risen from more than 2-1/2 year lows reached
earlier this month and the yield curve has steepened as recent
data including jobs, inflation and retail sales data showed an
improving U.S. economy.
    The Fed on Wednesday reported "modest" U.S. economic growth
in recent weeks, with consumers continuing to spend, and a
"generally positive" outlook overall even with disruptions from 
U.S. trade policy.             
    The yield rise has been capped by dovish central bank policy
globally. Strong demand for European government debt also boosts
U.S. Treasuries. U.S. debt offers a significantly higher yield
than comparable German government bonds, which traded at a yield
of minus 0.29% on Wednesday.             
    Interest rate futures traders are pricing in a 65% chance of
a 25 basis point cut by the Fed this month and a 35% likelihood
of a 50 basis point cut, according to the CME Group's FedWatch
tool.
    

 (Editing by Susan Thomas and Richard Chang)
  
 
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