June 21, 2018 / 3:03 PM / 3 months ago

TREASURIES-Yields fall on worries over US-China trade spat, data

    * Daimler issues negative profit guidance due to trade war
    * Italy appoints euroskeptics to key govt posts
    * Philly Fed data disappoints

 (Recasts, adds new comment, byline, Treasuries table, updates
prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 21 (Reuters) - U.S. Treasury yields dropped
on Thursday, pressured by worries over a continuing U.S. trade
battle with China that triggered a cut in forecast earnings by
German carmaker Daimler, as well as U.S. data that came in lower
than expected.
    Benchmark U.S. 10-year note and 30-year bond yields have
fallen in two of the last three sessions as U.S.-China trade
tensions increased.
    "The trade war is still a factor," said Jim Vogel, interest
rates strategist, at FTN Financial in Memphis, Tennessee. "There
was an awful lot of buying of Treasuries overnight as people
both watched Daimler and Italy."
    On Tuesday, trade tensions between China and the United
States intensified after President Donald Trump threatened to
impose a 10 percent tariff on $200 billion of Chinese goods
while Beijing warned it would fight back.
    Daimler cut its 2018 profit forecast and said
late on Wednesday import tariffs on cars exported from the
United States to China would hurt sales of its Mercedes-Benz
cars. Another German carmaker BMW said on
Thursday it was looking at "strategic options" amid the trade
war.
    Italy also weighed on U.S. yields after the Italian
government appointed two euroskeptics to head key finance
committees.
    In mid-morning trading, U.S. 10-year yields fell to 2.896
percent, from Wednesday's 2.928 percent.
    Ian Lyngen, head of U.S. rates strategy at BMO Capital, said
the 10-year yield is up against the 74-day moving average of
2.91 percent, which has proven to be a "focal point" rather than
the breakout trigger that he initially envisioned. 
    U.S. 30-year yields slid to 3.038 percent, 
compared with 3.064 percent on Wednesday.
    On the short end, U.S. two-year note yields slipped to 2.541
percent, from 2.562 percent late on Thursday.
    Italy's 10-year government bond yield rose 14 basis points
to a one-week high of 2.72 percent, while two-year
borrowing costs rose 25 basis points to 0.84 percent.
    Thursday's data did not help yields, with a U.S.
mid-Atlantic business survey for June coming in below
expectations, while a weekly report on jobless claims showed
mixed results.
    The Philadelphia Fed business conditions index fell to 19.9,
compared with expectations for a 29.0 reading. The index was at
34.4 in May.
    "There was some buying after a miss in Philly Fed," said
FTN's Vogel. "It is one of the first indicators of turns in
economic sentiment."
    U.S. initial jobless claims, meanwhile, dropped 3,000 to a
seasonally adjusted 218,000 for the week ended June 16. However,
claims data for the prior week was revised to show 3,000 more
applications received than previously reported.
    
      June 21 Thursday 10:36AM New York / 1436 GMT
                               Price                  
 US T BONDS SEP8               144-2/32     0-18/32   
 10YR TNotes SEP8              119-224/256  0-68/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.895        1.9305    -0.002
 Six-month bills               2.0675       2.1182    -0.013
 Two-year note                 99-236/256   2.5411    -0.021
 Three-year note               99-242/256   2.6441    -0.028
 Five-year note                99-240/256   2.7634    -0.033
 Seven-year note               100-36/256   2.8524    -0.035
 10-year note                  99-212/256   2.8949    -0.033
 30-year bond                  101-184/256  3.037     -0.027
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.50         1.25    
 spread                                               
 U.S. 3-year dollar swap        23.00         1.00    
 spread                                               
 U.S. 5-year dollar swap        14.75         1.00    
 spread                                               
 U.S. 10-year dollar swap        6.75         0.75    
 spread                                               
 U.S. 30-year dollar swap       -7.25         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette
Baum)
  
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