US Markets

Trade worries keep U.S. bond yields steady

Credit: REUTERS/THOMAS WHITE

U.S. Treasury yields held steady on Monday, bouncing off multi-year lows as uncertainties over trade developments between China and the United States underpinned safe-haven demand for low-risk government bonds.

By Richard Leong

NEW YORK, Aug 26 (Reuters) - U.S. Treasury yields held steady on Monday, bouncing off multi-year lows as uncertainties over trade developments between China and the UnitedStates underpinned safe-haven demand for low-risk government bonds.

Benchmark 10-year Treasury yields slid to 1.443% earlier on Monday, their lowest since July 2016, in the wake of another round of tit-for-tat tariffs between the world's biggest economies last week.

On Friday, U.S. President Donald Trump announced an additional duty on some $550 billion of targeted Chinese goods, hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. goods.

By Monday, Trump and Chinese leaders sought to ease trade tensions that triggered steep stock market sell-offs around the world. Trump told a press conference after the G7 summit in France: "I think they want to make a deal very badly."

Analysts were not as optimistic.

"Tough call at this point. In the end, short-term actions speak louder than words. And the most recent actions on both sides was not constructive and continues to weigh on sentiment," said Greg Faranello, head of U.S. rates at AmeriVet Securities.

The trade war between China and the United States has put the Federal Reserve in a tough spot as policymakers have cited its disruption of global business activities as a risk to the domestic economy.

On Friday, Fed Chair Jerome Powell said the central bank would "act as appropriate" to sustain the longest-ever U.S. economic expansion. But he did not pledge that the Fed was ready to embark on a series of interest rate cuts.

Interest rates futures implied traders expect the Fed to lower rates by a quarter point at its Sept. 17-18 policy meeting, following its first rate decrease since 2008 in July.

Fed funds contracts suggested the Fed would cut rates at least one more time after September, CME Group's FedWatch program showed.

On the data front, domestic orders for durable goods unexpectedly rose in July but shipments fell by the most in nearly three years, suggesting capital investment remained sluggish.

The U.S. Treasury will sell $113 billion in fixed-rate debt supply this week, starting with a $40 billion auction of two-year notes US2YTWI=TWEB on Tuesday.

On the open market, yields on two-year notes US2YT=RR fell as low as 1.449%, their lowest since September 2017. They subsequently moved up to 1.545%, up 1.60 basis point.

Ten-year Treasury yields US10YT=RR were 1.5331.532%, marginally higher on the day, rebounding from a three-year low of 1.443% set earlier on Monday.

The spread between two-year and 10-year yields US2US10Y=TWEB turned positive with a recovery in U.S. stock index futures. It was inverted earlier at -1.7 basis points.

The three major Wall Street stock indexes were up nearly 1% in midday U.S. trading.

August 26 Monday 12:36PM New York / 1636 GMT

Price

US T BONDS SEP9 USc1

165-13/32

-4/32

10YR TNotes SEP9 TYc1

130-232/256

-2/32

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.9525

1.9943

0.030

Six-month bills US6MT=RR

1.84

1.8877

0.018

Two-year note US2YT=RR

100-101/256

1.5412

0.012

Three-year note US3YT=RR

100-32/256

1.4567

0.008

Five-year note US5YT=RR

101-152/256

1.4139

0.005

Seven-year note US7YT=RR

102-160/256

1.4749

0.002

10-year note US10YT=RR

100-220/256

1.5317

0.005

30-year bond US30YT=RR

104-244/256

2.0286

0.005

YIELD CURVE

Last (bps)

Net Change (bps)

10-year vs 2-year yield

-1.10

-1.20

30-year vs 5-year yield

61.20

0.60

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

-1.75

0.00

U.S. 3-year dollar swap spread

-3.75

0.00

U.S. 5-year dollar swap spread

-5.50

0.25

U.S. 10-year dollar swap spread

-8.75

0.50

U.S. 30-year dollar swap spread

-39.50

0.50

GRAPHIC-U.S. Fed's next rate cut? pnghttps://tmsnrt.rs/2yqy9R4

GRAPHIC-U.S. Fed's next rate cut? interactivehttps://tmsnrt.rs/2yrEpbn

(Reporting by Richard Leong in New York and Dhara Ranasinghe in LONDON; Editing by Thyagaraju Adinarayan, Steve Orlofsky and Dan Grebler)

((richard.leong@thomsonreuters.com; +1 646 223 6313; Reuters Messaging: richard.leong.thomsonreuters.com@thomsonreuters.net; Twitter @RichardLeong2))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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