Renewable Energy

Yields drift lower on ongoing U.S.-China trade tension

Credit: REUTERS/Dado Ruvic

U.S. Treasury yields slipped on Monday, with long-dated debt falling for a second straight session and Wall Street stocks weaker, as risk appetite diminished amid ongoing trade tension between the United States and China.

By Gertrude Chavez-Dreyfuss

NEW YORK, May 20 (Reuters) - U.S. Treasury yields slipped on Monday, with long-dated debt falling for a second straight session and Wall Street stocks weaker, as risk appetite diminished amid ongoing trade tension between the United States and China.

Volume was generally light, with very little economic data this week and traders eyeing Friday's early close for Memorial Day weekend.

On Monday, China accused the United States of harboring "extravagant expectations" for a trade deal, underlining the gulf between the two sides as U.S. action against China's technology giant Huawei began hitting the global tech sector.

"Right now with all the trade fears going on, everybody is rushing to safety here," said Stan Shipley, fixed income strategist at Evercore ISI in New York. "If you look at economic data, it looks fine in the U.S. and elsewhere too, but people are very worried about the tariff battle here."

In mid-morning trading, U.S. 10-year note yields slipped to 2.389% US10YT=RR, down from 2.393% late on Friday.

Yields on U.S. 30-year bonds were also lower at 2.814% US30YT=RR, down from 2.824% on Friday.

On the short end of the curve, however, U.S. 2-year yields were slightly up at 2.206%, compared with Friday's 2.202% US2YT=RR.

Analysts said a U.S. economy is not nearing recession, but the risk increases if the trade war with China escalates further.

"We've long maintained that the economic expansion's greatest vulnerability comes in the form of a spike in uncertainty leading businesses to scale back spending plans," said BMO Capital Markets in a research note

"This eventually risks flowing through to the labor market as hiring slows, thereby undermining consumer confidence and spending. Hence, a recession is born."

BMO said it's too soon for this scenario to happen, although recent soft U.S. retail sales figures contradicted Federal Reserve Chairman Jerome Powell's stance that the first quarter's weak consumption was temporary.

In a week with few economic reports on the schedule, the highlight is the release on Wednesday of the minutes of the Fed's last monetary policy meeting. Analysts, however, do not expect surprises from the minutes.

May 20 Monday 9:54AM New York / 1354 GMT

Price

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Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

2.335

2.3807

-0.012

Six-month bills US6MT=RR

2.34

2.4067

-0.015

Two-year note US2YT=RR

100-21/256

2.2063

0.004

Three-year note US3YT=RR

99-238/256

2.1494

0.000

Five-year note US5YT=RR

100-86/256

2.1778

0.000

Seven-year note US7YT=RR

100-160/256

2.2771

0.000

10-year note US10YT=RR

99-224/256

2.3891

-0.004

30-year bond US30YT=RR

101-52/256

2.8153

-0.009

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

5.50

-0.75

U.S. 3-year dollar swap spread

4.00

-0.50

U.S. 5-year dollar swap spread

0.75

-0.25

U.S. 10-year dollar swap spread

-5.25

-0.50

U.S. 30-year dollar swap spread

-28.50

-0.25

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci)

((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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