Renewable Energy

U.S. yields plummet on trade war, growth worries

Credit: REUTERS/FAYAZ AZIZ

U.S. Treasury yields dropped across the board on Thursday as risk appetite faded amid continued concerns about global growth and a worsening trade conflict between the United States and China.

By Gertrude Chavez-Dreyfuss

NEW YORK, May 23 (Reuters) - U.S. Treasury yields dropped across the board on Thursday as risk appetite faded amid continued concerns about global growth and a worsening trade conflict between the United States and China.

U.S. 30-year bond yields sank to roughly 17-month lows, while those on benchmark 10-year notes fell to their lowest level since October 2017, as shares around the world took a nose dive.

U.S. 2-year yields, the note most sensitive to the interest rate outlook, sagged to their weakest level since February 2018.

In another sign of growing market anxiety, two yield curve indicators inverted on Thursday.

"This is mostly trade tensions and global growth fears. But trade tension is the big one because that's pulling down equities considerably," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco.

Investors worried that the U.S.-China trade spat could intensify and further undermine global growth.

The United States and China had a heated exchange on Thursday, with U.S. Secretary of State Mike Pompeo accusing Chinese telecom giant Huawei Technologies HWT.UL of lying about its ties to the government and Beijing saying Washington must end its "wrong actions" if it wanted trade talks to continue.

In late trading, U.S. 10-year note yields fell to 2.293% US10YT=RR from 2.393% late on Wednesday, after earlier sliding to 2.292%, its lowest since October 2017.

Action Economics' Rupert said she is hearing that the 10-year yield could hit 2.20% and 2% for the two-year note.

Yields on U.S. 30-year bonds slid to 2.735% US30YT=RR, from 2.819% on Wednesday, after earlier sliding to 2.731%, a 17-month low.

On the short end of the curve, U.S. 2-year yields were down at 2.129% from Wednesday's 2.231% US2YT=RR. Two-year yields earlier dropped to a 15-month trough of 2.121%.

In addition, two yield curve measures inverted on Thursday. The gap in yield between U.S. 3-month and 10-year notes, as well as that between 2-year and 5-year notes US2US5=TWEB fell, suggesting expectations of slower economic growth.

"The 2s/5s inversion is in mini-panic mode, one reason to term this morning a risk-off move even though it has its rationale in fundamentals more than events," said Jim Vogel, senior rates strategist, at FTN Financial in Memphis, Tennessee.

"In this case, events are a contributor," he added.

Britain's trouble-plagued attempt to leave the European Union has also helped boost U.S. bond prices.

Prime Minister Theresa May tenuously held on to power on Thursday after her final Brexit gambit backfired. May's departure will deepen the Brexit crisis as a new leader is likely to want a more decisive split.

U.S. yields fell as well after a pair of U.S. economic data -- manufacturing activity, new home sales -- showed weakness.

May 23 Thursday 3:09PM New York / 1909 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

2.3125

2.3583

-0.020

Six-month bills US6MT=RR

2.325

2.3917

-0.015

Two-year note US2YT=RR

100-58/256

2.1295

-0.102

Three-year note US3YT=RR

100-42/256

2.0678

-0.103

Five-year note US5YT=RR

100-194/256

2.0875

-0.101

Seven-year note US7YT=RR

101-56/256

2.1845

-0.099

10-year note US10YT=RR

100-180/256

2.2957

-0.097

30-year bond US30YT=RR

102-220/256

2.7346

-0.084

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

4.50

-1.00

U.S. 3-year dollar swap spread

2.75

-1.25

U.S. 5-year dollar swap spread

0.00

-1.00

U.S. 10-year dollar swap spread

-5.75

-1.00

U.S. 30-year dollar swap spread

-29.25

-1.25

(Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski and Susan Thomas)

((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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