August 16, 2019 / 1:36 PM / a month ago

TREASURIES-Yields rise from three-year lows, trade concerns remain

    * U.S.-China trade war remains worry for investors
    * Fed Chairman Powell to speak at Jackson Hole next Friday

    By Karen Brettell
    NEW YORK, Aug 16 (Reuters) - Benchmark U.S. Treasury yields
rose from three-year lows on Friday as investors evaluated how
far damage from the U.S.-China trade war will spread, after the
inversion of a key part of the yield curve this week raised
fears of a U.S. recession.
    Safe-haven government bond yields plunged this week, and the
closely watched U.S. yield curve between 2-year and 10-year
notes inverted for the first time since 2007 on Wednesday,
sending stock markets sharply lower.
    The inversion of that part of the yield curve               
has historically been a reliable indicator that a U.S. recession
is coming in one to wo years.
    Escalating tensions between the United States and China are
weighing on business sentiment and adding to concerns that U.S.
economic growth will slow more than previously anticipated.
    “The market is attempting to gauge the extent, duration and
magnitude of the fallout from the trade war,” said Ian Lyngen,
head of U.S. rates strategy at BMO Capital Markets in New York.
    As economic data worsens, central banks globally are
expected to adopt increasingly dovish monetary policies to
loosen financial conditions.
    The Federal Reserve last month cut interest rates for the
first time in over a decade and said further cuts may not be
    The bond market, however, sees a rate decrease at the U.S.
central bank’s September meeting as a sure thing, with the only
question being the size.
    Interest rate futures traders are pricing in a 72 percent
chance of a 25-basis-point cut and a 28 percent chance of a
50-basis-point one, according to the CME Group’s FedWatch tool.
    Benchmark 10-year notes             fell 9/32 in price on
Friday to yield 1.556%, after reaching a three-year low of
1.475% on Thursday. Continuing concern about economic growth may
send the yields below record lows of 1.321% reached in July
    Plunging yields across the globe, including negative rates
in much of Europe, have sent investors to longer-dated debt to
capture returns. Thirty-year Treasury bond yields fell to a
record low of 1.916% on Thursday. They were last 2.008%.
    Fed Chairman Jerome Powell is due to speak at the Fed’s
economic symposium in Jackson Hole, Wyoming, on Aug. 23. His
comments will be closely evaluated for any indications that he
has changed his stance on further rate cuts.

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