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U.S. long yields drop on nagging trade tension with China

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NEW YORK — U.S. long-dated Treasury yields

fell to fresh two-week lows on Tuesday, with risk appetite

weaker overall amid persistent uncertainty over U.S.-China trade

negotiations.

U.S. 10-year and 30-year yields have fallen in five of the

last six sessions.

Bond investors are cautiously optimistic a trade deal

between the world’s two largest economies will get done, but the

delay, after what has been a two-year trade war, has kept market

participants on the sidelines.

“It’s more trade jitters that knocked the Dow a little bit

lower again – more of a safety trade,” said Kim Rupert, managing

director of global fixed income at Action Economics in San

Francisco.

U.S. President Donald Trump stirred the pot once again on

trade. He said on Tuesday the United States would raise tariffs

on Chinese imports if no deal is reached with Beijing.

Speaking at a cabinet meeting at the White House, Trump said

he had a good relationship with China, noting that China was

“moving along.” However, he said China would have to make a deal

“I like.”

“If we don’t make a deal with China, I’ll just raise the

tariffs even higher,” he told a room filled with senior U.S.

officials.

On economic data, the reports showed that homebuilding

rebounded in October and permits for future home construction

jumped to a more than 12-year high. The numbers

though had minimal impact on the Treasury market, with the focus

on trade and other factors.

Amid the trade standoff, the U.S. yield curve continued to

flatten on Tuesday, with the spread between the two-year and

10-year note yields at 18.7 basis points, the

narrowest in two weeks. The curve has flattened for five

straight sessions.

Aside from the trade factor, Action Economics’ Rupert said

the curve has flattened as the Federal Reserve has paused its

interest rate-cutting cycle.

“A rate hike is out of the picture and a rate cut is pretty

far off into the future. So I think that’s what’s giving the

long end most of the gains here,” she added.

In afternoon trading, U.S. 10-year note yields

fell to a two-week low at 1.777%. They were last down at 1.789%,

from 1.808% late on Monday.

Yields on 30-year bonds also slid to two-week

troughs of 2.249% and last changed hands at 2.258%, down from

2.293% Monday.

On the short-end of the curve, however, U.S. two-year yields

were higher at 1.598%, up from Monday’s 1.592%.

New York Federal Reserve President John Williams on Tuesday

affirmed the Fed’s neutral stance on monetary policy after

cutting interest rates three times this year.

“I think we have monetary policy in the right place,” he

said during a discussion at a capital markets conference in

Washington. “The economy is right where we would like it to be.”

November 19 Tuesday 2:52 P.M. New York / 1952 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 1.535 1.5667 -0.007

Six-month bills 1.54 1.578 0.000

Two-year note 99-207/256 1.6002 0.008

Three-year note 100-22/256 1.5954 0.000

Five-year note 99-104/256 1.6254 0.000

Seven-year note 99-104/256 1.716 -0.010

10-year note 99-164/256 1.7894 -0.019

30-year bond 102-144/256 2.2569 -0.036

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap -1.00 -1.75

spread

U.S. 3-year dollar swap -4.25 -1.25

spread

U.S. 5-year dollar swap -6.75 -1.50

spread

U.S. 10-year dollar swap -11.00 -0.50

spread

U.S. 30-year dollar swap -39.75 0.50

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler

and Marguerita Choy)

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