June 21, 2018 / 7:08 PM / 5 months ago

TREASURIES-Yields slip on persistent U.S.-China trade issue, data

    * Daimler issues negative profit guidance due to trade war
    * Italy appoints euroskeptics to key govt posts
    * Philly Fed data disappoints

 (Adds analyst comment, updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 21 (Reuters) - U.S. Treasury yields fell on
Thursday on worries about a continuing U.S. trade battle with
China that prompted German carmaker Daimler AG to cut
its 2018 profit forecast, and as U.S. data fell below
expectations.
    Benchmark U.S. 10-year note and 30-year bond yields have
fallen in two of the last three sessions as U.S.-China trade
tensions increased. 
    On Tuesday, President Donald Trump threatened to impose a 10
percent tariff on $200 billion of Chinese goods while Beijing
warned it would fight back.
    "It's another safe-haven bid for Treasuries given the trade
jitters and concerns about Italy," said Kim Rupert, managing
director of global fixed income at Action Economics in San
Francisco.
    Daimler said late Wednesday that tariffs on U.S. car imports
to China would hurt sales of its Mercedes-Benz models.
 Rival German carmaker BMW said on
Thursday it was looking at "strategic options" because of the
trade war.
    Italy, the third largest euro zone economy, also weighed on
U.S. yields after the country's government appointed two
euroskeptics to head key finance committees.
    In afternoon trading, U.S. 10-year yields fell to 2.904 
percent, from Wednesday's 2.928 percent.
    Ian Lyngen, head of U.S. rates strategy at BMO Capital, said
the 10-year yield is up against the 74-day moving average of
2.91 percent, which has proven to be a "focal point" rather than
the breakout trigger that he initially envisioned. 
    U.S. 30-year yields slid to 3.05 percent, 
compared with 3.064 percent on Wednesday.
    On the short end, U.S. two-year note yields slipped to 2.545
percent, from 2.562 percent late on Thursday.
    Italy's 10-year government bond yield rose to a one-week
high of 2.72 percent, while two-year borrowing costs
rose to 0.84 percent.
    A U.S. mid-Atlantic business survey for June came in below
expectations, while a weekly report on jobless claims showed
mixed results.
    The Philadelphia Fed business conditions index fell to 19.9,
compared with expectations for a 29.0 reading. The index was at
34.4 in May.
    U.S. initial jobless claims dropped 3,000 to a seasonally
adjusted 218,000 for the week ended June 16. However, claims
data for the prior week was revised to show 3,000 more
applications received than previously reported.
    As trade issues linger, investors will be looking at bond
supply next week for clues about the market's direction.
    The U.S. Treasury said on Thursday it would sell $100
billion of securities next week, including $34 billion of 2-year
notes on Tuesday, $36 billion of five-year notes on Wednesday,
and $30 billion of seven-year notes on Thursday.
    
      June 21 Thursday 2:37PM New York / 1837 GMT
                               Price                  
 US T BONDS SEP8               143-25/32    0-9/32    
 10YR TNotes SEP8              119-208/256  0-52/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.895        1.9305    -0.002
 Six-month bills               2.06         2.1105    -0.020
 Two-year note                 99-234/256   2.5452    -0.017
 Three-year note               99-238/256   2.6496    -0.022
 Five-year note                99-230/256   2.7719    -0.024
 Seven-year note               100-24/256   2.8598    -0.027
 10-year note                  99-192/256   2.904     -0.024
 30-year bond                  101-120/256  3.0497    -0.014
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.50         1.25    
 spread                                               
 U.S. 3-year dollar swap        23.25         1.25    
 spread                                               
 U.S. 5-year dollar swap        14.50         0.75    
 spread                                               
 U.S. 10-year dollar swap        6.25         0.25    
 spread                                               
 U.S. 30-year dollar swap       -7.50        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette
Baum and Richard Chang)
  
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