TREASURIES-U.S. long-dated yields drop to three-week lows on renewed China tension

By Gertrude Chavez-Dreyfuss NEW YORK, Nov 20 (Reuters) - U.S. long-dated yields fell to three-week lows on Wednesday, weighed down by renewed anxiety about trade talks with China after the U.S. Senate on Tuesday unanimously passed legislation aimed at protecting human rights in Hong Kong. U.S. 10-year and 30-year yields have fallen in six of the last seven sessions, while two-year yields dropped to two-week lows. Amid persistent trade tension, the U.S. yield curve continued to flatten on Wednesday, with the spread between the two-year and 10-year note yields hitting 15 basis points , the narrowest in three weeks. The yield spread has contracted for six straight sessions. Following the voice vote, the "Hong Kong Human Rights and Democracy Act" will go to the House of Representatives, which approved its own version last month. The bill was passed amid a crackdown on the pro-democracy protest movement in Hong Kong. China on Wednesday condemned the passage of the bill and vowed strong counter-measures to safeguard its sovereignty and security. The United States and China have been tangled in a trade war over the last two years that have resulted in bouts of tit-for-tat tariffs, shaking financial markets and threatening to undermine global growth. "It looks like China is going to retaliate. That's why we saw the big move overnight," said Tom di Galoma, managing director at Seaport Global Securities in New York. He noted, though, that "the market is overextended right now," having had a big move from 1.90% in 10-year notes to 1.72% and believed that Treasury yields could go higher into year-end. In morning trading, U.S. 10-year note yields fell to a three-week low at 1.728%. They were last down at 1.756%, from 1.786% late on Tuesday. Yields on 30-year bonds also slid to three-week troughs of 2.192%, last changing hands at 2.223%, down from 2.256% Monday. On the short-end of the curve, U.S. two-year yields slid to two-week lows of 1.567%. They were last at 1.581%, down from Tuesday's 1.596%. Seaport's di Galoma is closely watching the UK election next month, which was called by British Prime Minister Boris Johnson to break the Brexit deadlock. "A Boris Johnson win means UK rates can go higher by 20-25 basis points. I think that would impact the Treasury market, pushing U.S. yields higher as well, as we get closer to the election," di Galoma said. Later in the session, the Federal Reserve will release the minutes of last month's monetary policy meeting, but analysts said they will unlikely add any new information to what Fed Chairman Jerome Powell had already testified last week before U.S. lawmakers. Powell last week said the U.S. economy's current expansion is on a sustainable footing. November 20 Wednesday 10:43 AM New York/1543 GMT Price Current Net Yield % Change (bps) Three-month bills 1.54 1.5718 0.005 Six-month bills 1.54 1.578 0.000 Two-year note 99-215/256 1.5839 -0.012 Three-year note 100-38/256 1.5739 -0.019 Five-year note 99-136/256 1.5989 -0.021 Seven-year note 99-152/256 1.6872 -0.024 10-year note 99-248/256 1.7534 -0.033 30-year bond 103-84/256 2.2223 -0.034 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap -1.50 -0.50 spread U.S. 3-year dollar swap -4.75 -0.25 spread U.S. 5-year dollar swap -7.25 -0.50 spread U.S. 10-year dollar swap -11.00 0.00 spread U.S. 30-year dollar swap -39.25 0.50 spread (Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski)

Advertisement