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U.S. long yields drop on nagging trade tension with China

Credit: REUTERS/Dado Ruvic

U.S. long-dated Treasury yields fell to fresh two-week lows on Tuesday, with risk appetite weaker overall amid persistent uncertainty over U.S.-China trade negotiations.

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 19 (Reuters) - U.S. long-dated Treasury yields fell to fresh two-week lowson Tuesday, with risk appetite weaker overall amid persistent uncertainty over U.S.-China trade negotiations.

U.S. 10-year and 30-year yields have fallen in five of the last six sessions.

Bond investors are cautiously optimistic a trade deal between the world's two largest economies will get done, but the delay, after what has been a two-year trade war, has kept market participants on the sidelines.

"It's more trade jitters that knocked the Dow a little bit lower again - more of a safety trade," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco.

U.S. President Donald Trump stirred the pot once again on trade. He said on Tuesday the United States would raise tariffs on Chinese imports if no deal is reached with Beijing.

Speaking at a cabinet meeting at the White House, Trump said he had a good relationship with China, noting that China was "moving along." However, he said China would have to make a deal "I like."

"If we don't make a deal with China, I'll just raise the tariffs even higher," he told a room filled with senior U.S. officials.

On economic data, the reports showed that homebuilding rebounded in October and permits for future home construction jumped to a more than 12-year high. The numbers though had minimal impact on the Treasury market, with the focus on trade and other factors.

Amid the trade standoff, the U.S. yield curve continued to flatten on Tuesday, with the spread between the two-year and 10-year note yields at 18.7 basis points US2US10=TWEB, the narrowest in two weeks. The curve has flattened for five straight sessions.

Aside from the trade factor, Action Economics' Rupert said the curve has flattened as the Federal Reserve has paused its interest rate-cutting cycle.

"A rate hike is out of the picture and a rate cut is pretty far off into the future. So I think that's what's giving the long end most of the gains here," she added.

In afternoon trading, U.S. 10-year note yields US10YT=RR fell to a two-week lowat 1.777%. They were last down at 1.789%, from 1.808% late on Monday.

Yields on 30-year bonds US30YT=RR also slid to two-week troughs of 2.249% and last changed hands at 2.258%, down from 2.293% Monday.

On the short-end of the curve, however, U.S. two-year yields were higher at 1.598%US2YT=RR, up from Monday's 1.592%.

New York Federal Reserve President John Williams on Tuesday affirmed the Fed's neutral stance on monetary policy after cutting interest rates three times this year.

"I think we have monetary policy in the right place," he said during a discussion at a capital markets conference in Washington. "The economy is right where we would like it to be."

November 19 Tuesday 2:52 P.M. New York / 1952 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.535

1.5667

-0.007

Six-month bills US6MT=RR

1.54

1.578

0.000

Two-year note US2YT=RR

99-207/256

1.6002

0.008

Three-year note US3YT=RR

100-22/256

1.5954

0.000

Five-year note US5YT=RR

99-104/256

1.6254

0.000

Seven-year note US7YT=RR

99-104/256

1.716

-0.010

10-year note US10YT=RR

99-164/256

1.7894

-0.019

30-year bond US30YT=RR

102-144/256

2.2569

-0.036

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

-1.00

-1.75

U.S. 3-year dollar swap spread

-4.25

-1.25

U.S. 5-year dollar swap spread

-6.75

-1.50

U.S. 10-year dollar swap spread

-11.00

-0.50

U.S. 30-year dollar swap spread

-39.75

0.50

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Marguerita Choy)

((gertrude.chavez@thomsonreuters.com; 646-223-6322; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net))

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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