Renewable Energy

U.S. yields slide on nagging U.S.-China trade issue, Brexit

Credit: REUTERS/DADO RUVIC

U.S. Treasury yields fell on Wednesday, weighed down by worsening trade tensions between the United States and China after a media report that the Trump administration is considering limits to Chinese video surveillance firm Hikvision's ability to buy American technology.

By Gertrude Chavez-Dreyfuss

NEW YORK, May 22 (Reuters) - U.S. Treasury yields fell on Wednesday, weighed down by worsening trade tensions between the United States and China after a media report that the Trump administration is considering limits to Chinese video surveillance firm Hikvision's ability to buy American technology.

Investors were also spooked by developments in Britain's troubled attempt to exit the European Union, fueling declines in U.S. long-dated yields after hitting one-week highs the previous session.

That said, the Federal Reserve will take center stage later on Wednesday when it releases the minutes of its latest monetary policy meeting. Analysts though do not expect surprises from the minutes.

But over the last few days, the U.S.-China trade saga has been at the front and center of bond investors' radar.

The New York Times reported late on Tuesday, citing people familiar with the matter, that the U.S. Commerce Department may require that U.S. companies obtain government approval to supply components to Hikvision, limiting the company's access to technology that helps power its equipment.

That came after Washington temporarily eased curbs against Chinese telecommunications equipment maker Huawei Technologies [RIC:RIC:HWT.UL].

"These days we have been trading a lot on headline risks and right now, we see renewed trade concerns with China," said Justin Lederer, Treasury trader at Cantor Fitzgerald in New York.

The Chinese government's top diplomat, Wang Yi, said on Wednesday that U.S. pressure on Chinese firms such as Huawei is economic bullying and a move to try to prevent the country's development process.

Aside from China, UK worries continued to help boost U.S. bond prices after Prime Minister Theresa May's final ploy to win support for her Brexit plan failed to win over either opposition lawmakers or many in her own party.

In late morning trading, U.S. 10-year note yields fell to 2.398% US10YT=RR from 2.426% late on Tuesday.

Yields on U.S. 30-year bonds slid to 2.818% US30YT=RR from 2.842% on Tuesday.

On the short end of the curve, U.S. 2-year yields were down at 2.228% from Tuesday's 2.258% US2YT=RR.

With China and Brexit in the background, the Fed minutes will be scrutinized for clues about where U.S. interest rates are headed.

Jim Vogel, senior rates strategist, at FTN Financial in Memphis, Tennessee said given higher rates that followed Fed Chairman Jerome Powell's podium appearance three weeks ago, investors will be on alert for discussions or disagreements that might dent the "no insurance cut" takeaway that started rates higher.

But if the Fed stands pat, "look for a flatter curve with firmer prices just past the 5-year," Vogel said.

May 22 Wednesday 10:35 AM New York / 1435 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

2.33

2.3764

-0.017

Six-month bills US6MT=RR

2.35

2.4179

0.000

Two-year note US2YT=RR

100-8/256

2.233

-0.025

Three-year note US3YT=RR

99-218/256

2.1766

-0.024

Five-year note US5YT=RR

100-62/256

2.1978

-0.030

Seven-year note US7YT=RR

100-136/256

2.2916

-0.031

10-year note US10YT=RR

99-204/256

2.398

-0.028

30-year bond US30YT=RR

101-36/256

2.8184

-0.024

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

5.75

0.50

U.S. 3-year dollar swap spread

4.25

0.50

U.S. 5-year dollar swap spread

1.00

0.50

U.S. 10-year dollar swap spread

-4.75

0.25

U.S. 30-year dollar swap spread

-28.00

0.00

(Reporting by Gertrude Chavez-Dreyfuss Editing by 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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