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U.S. yields tumble on trade war fears, growth worries

Credit: REUTERS/FAYAZ AZIZ

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

U.S. 30-year bond yields sank to roughly 16-month lows, while those on benchmark 10-year notes fell to their lowest level since December 2017, as shares around the world took a nose dive.

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

"A lot of these has to do with growth concerns and the potential for this trade war not to end," said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee.

"We are in risk-off mode ahead of this weekend because we don't know what's going to happen. The tensions are still too high and we had weekends before filled with additional news," he added.

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

China on Thursday called out the United States, saying it needs to correct its "wrong actions" for trade talks to continue after it blacklisted Chinese telecommunications equipment maker Huawei Technologies.

In mid-morning trading, U.S. 10-year note yields fell to 2.332% US10YT=RR from 2.393% late on Wednesday, after earlier sliding to 2.327%, its lowest since December 2017.

Technical charts suggest the break of support in the 2.338% area on the 10-year could see the note drop to the 2.28% region, Action Economics said.

Yields on U.S. 30-year bonds slid to 2.766% US30YT=RR from 2.819% on Wednesday. Thirty-year yields earlier slumped to 2.762%, a 16-month low.

On the short end of the curve, U.S. 2-year yields were down at 2.17% from Wednesday's 2.231% US2YT=RR.

Two yield curve measures briefly inverted. 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 10:03AM New York / 1403 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

2.315

2.3608

-0.017

Six-month bills US6MT=RR

2.3375

2.4047

-0.002

Two-year note US2YT=RR

100-40/256

2.1667

-0.064

Three-year note US3YT=RR

100-16/256

2.1031

-0.068

Five-year note US5YT=RR

100-154/256

2.1208

-0.068

Seven-year note US7YT=RR

101

2.2185

-0.066

10-year note US10YT=RR

100-96/256

2.3326

-0.060

30-year bond US30YT=RR

102-60/256

2.7648

-0.054

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

5.25

-0.25

U.S. 3-year dollar swap spread

3.50

-0.50

U.S. 5-year dollar swap spread

0.50

-0.50

U.S. 10-year dollar swap spread

-5.00

-0.25

U.S. 30-year dollar swap spread

-28.50

-0.50

(Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski)

((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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