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U.S. yields tumble on trade worries, political tension

Credit: REUTERS/JOSE LUIS GONZALEZ

U.S. Treasury yields fell on Monday, in line with the weak stock market, as trade worries and global political tensions from Hong Kong to Argentina supported safe-haven assets.

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 12 (Reuters) - U.S. Treasury yields fell on Monday, in line with the weak stock market, as trade worries and global political tensions from Hong Kong to Argentina supported safe-haven assets.

U.S. 30-year bond yields slid to their lowest since July 2016. Long-term yields have fallen in six of the past nine sessions, reflecting investors' diminished risk appetite.

European bond yields were also lower on the day.

The U.S. yield curve has also flattened significantly, suggesting anxiety is rising. The yield spread between U.S. 2-year and 10-year notes, a closely watched metric, narrowed to 5.3 basis points, the smallest difference since June 2007, according to Refinitiv data.

The bond rally was triggered by protests in Hong Kong that crippled Hong Kong's airport over the weekend, after being sparking by opposition to a bill allowing extradition to mainland China. Meanwhile in Argentina, the defeat of President Mauricio Macri during primary elections added to global stress.

"The Hong Kong demonstrations and their ability to shut down the airport and the surprise in Argentina took the wind out of the sails of the stock market," said Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee.

"We're back to worrying that things are still unsettled and so there's no need to push stocks higher, and without that optimism, without that 'things-are-getting-better' impulse behind stocks, Treasury yields are moving to the lower middle of the range," he added.

Italy also saw political ructions after the League party last week filed a no-confidence motion against its own governing coalition. The party's populist chief Matteo Salvini hopes that the motion move will trigger early elections and have him installed as the new leader.

Concerns about the U.S.-China trade conflict persisted. A week ago, China allowed the yuan CNY=CFXS to break through the key 7-per-dollar level for the first time since 2008, prompting Washington to label Beijing a currency manipulator and sparking market turmoil.

Analysts also said Monday's bond rally was exaggerated by a slew of holidays in Asia, particularly Japan, Singapore and India.

In afternoon trading, U.S. benchmark 10-year Treasury note yields US10YT=RR fell to 1.64% from 1.734% late on Friday.

Since the beginning of the year, 10-year yields have fallen more than a hundred basis points, on track for its steepest drop in eight years.

Yields on 30-year bonds slid to 2.13% US30YT=RR, from 2.247% on Friday. They earlier fell to a more than three-year low of 2.119%.

At the short end of the curve, two-year yields slipped to 1.581%, from Friday's 1.63% US2YT=RR.

"As long as there is global political tension, we're going to get downward pressure on U.S. yields," Stan Shipley, fixed-income strategist, at Evercore ISI in New York, said.

Monday, Aug. 12, at 1727 EDT (2127 GMT):

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.9475

1.9838

-0.018

Six-month bills US6MT=RR

1.885

1.9343

-0.016

Two-year note US2YT=RR

100-85/256

1.5776

-0.052

Three-year note US3YT=RR

99-252/256

1.5053

-0.067

Five-year note US5YT=RR

101-66/256

1.4862

-0.077

Seven-year note US7YT=RR

102-24/256

1.5566

-0.084

10-year note US10YT=RR

99-220/256

1.6403

-0.094

30-year bond US30YT=RR

102-180/256

2.1276

-0.119

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

-2.00

-0.75

U.S. 3-year dollar swap spread

-4.50

-0.25

U.S. 5-year dollar swap spread

-6.75

0.50

U.S. 10-year dollar swap spread

-11.25

0.50

U.S. 30-year dollar swap spread

-40.25

1.25

(Reporting by Gertrude Chavez-Dreyfuss; editing by G Crosse)

((gertrude.chavez@thomsonreuters.com; +1-646-223-6322; 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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