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TREASURIES-U.S. yields falter as Hong Kong tension weighs

Gertrude Chavez-Dreyfuss

By Gertrude Chavez-Dreyfuss NEW YORK, May 22 (Reuters) - U.S. Treasury yields fell on Friday, as risk sentiment turned sour after Beijing proposed imposing a new security law on Hong Kong, exacerbating China's strained relationship with the United States. U.S. 10-year and 30-year yields slid to one-week lows, while the yield curve flattened for a fourth straight session. China's overnight announcement about the security law in Hong Kong, following last year's pro-democracy rallies, drew a stern reaction from the Washington. U.S. Secretary of State Mike Pompeo condemned the proposal as arbitrary and said it could affect the favorable U.S. treatment of the territory. He said the United States stands with the people of Hong Kong. "The markets are now paying close attention to some of the pre-coronavirus activity or headlines such as those related to Hong Kong and China, and now that's weighing on the market a little bit in terms of pushing yields lower," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Devon, Pennsylvania. In late morning trading, U.S. 10-year yields fell to 0.660% from 0.677% late on Thursday, after earlier falling to a one-week low of 0.627%. Yields on U.S. 30-year bonds were at 1.373%, down from up from 1.398% on Thursday. Earlier, 30-year yields dropped to a one-week trough of 1.329%. U.S. 20-year bond yields were also lower at 1.311% . On the short end of the curve, U.S. two-year yields were last at 0.163%, down from Thursday's 0.167%. The yield curve flattened some more on Friday, with the spread between the 10-year and two-year narrowing to 49.30 basis points. Overall, traders expected Treasuries to remain rangebound for awhile, absent a vaccine or treatment for the novel coronavirus. "The technical profile in the U.S. rates market offers very little to inspire one to expect a defining trading session anytime soon," said BMO Capital in a research note. "This brings us well into June at this point and the prospects for a breakout dwindle the longer 10s remain stubbornly between 54 basis points and 78 basis points." May 22 Friday 10:55 AM New York / 1455 GMT Price Current Net Yield % Change (bps) Three-month bills 0.12 0.122 0.000 Six-month bills 0.1525 0.1547 0.008 Two-year note 99-237/256 0.1635 -0.003 Three-year note 99-196/256 0.2042 -0.008 Five-year note 100-60/256 0.327 -0.011 Seven-year note 99-248/256 0.5046 -0.013 10-year note 99-176/256 0.6574 -0.020 30-year bond 96-240/256 1.375 -0.023 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.00 0.50 spread U.S. 3-year dollar swap 6.00 0.50 spread U.S. 5-year dollar swap 3.50 0.50 spread U.S. 10-year dollar swap -0.75 0.75 spread U.S. 30-year dollar swap -45.50 1.25 spread (Reporting by Gertrude Chavez-Dreyfuss)