U.S. Markets closed

TREASURIES-U.S. yields tumble on trade worries, political tension

By Gertrude Chavez-Dreyfuss

* Hong Kong protests, Argentina weigh on Treasuries * U.S. 30-year yields fall to more than 3-year low * U.S. yield curve flattens significantly * U.S. long-term yields fall in six of last 9 sessions * U.S. 10-year yields down more 100 basis points since January (Updates U.S. 2-year/10-year spread, prices) By Gertrude Chavez-Dreyfuss NEW YORK, Aug 12 (Reuters) - U.S. Treasury yields fell on Monday, in line with the weak stock market, as trade worries and global political tensions from Hong Kong to Argentina supported safe-haven assets. U.S. 30-year bond yields slid to their lowest since July 2016. Long-term yields have fallen in six of the past nine sessions, reflecting investors' diminished risk appetite. European bond yields were also lower on the day. The U.S. yield curve has also flattened significantly, suggesting anxiety is rising. The yield spread between U.S. 2-year and 10-year notes, a closely watched metric, narrowed to 5.3 basis points, the smallest difference since June 2007, according to Refinitiv data. The bond rally was triggered by protests in Hong Kong that crippled Hong Kong's airport over the weekend, after being sparking by opposition to a bill allowing extradition to mainland China. Meanwhile in Argentina, the defeat of President Mauricio Macri during primary elections added to global stress. "The Hong Kong demonstrations and their ability to shut down the airport and the surprise in Argentina took the wind out of the sails of the stock market," said Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee. "We're back to worrying that things are still unsettled and so there's no need to push stocks higher, and without that optimism, without that 'things-are-getting-better' impulse behind stocks, Treasury yields are moving to the lower middle of the range," he added. Italy also saw political ructions after the League party last week filed a no-confidence motion against its own governing coalition. The party's populist chief Matteo Salvini hopes that the motion move will trigger early elections and have him installed as the new leader. Concerns about the U.S.-China trade conflict persisted. A week ago, China allowed the yuan to break through the key 7-per-dollar level for the first time since 2008, prompting Washington to label Beijing a currency manipulator and sparking market turmoil. Analysts also said Monday's bond rally was exaggerated by a slew of holidays in Asia, particularly Japan, Singapore and India. In afternoon trading, U.S. benchmark 10-year Treasury note yields fell to 1.64% from 1.734% late on Friday. Since the beginning of the year, 10-year yields have fallen more than a hundred basis points, on track for its steepest drop in eight years. Yields on 30-year bonds slid to 2.13%, from 2.247% on Friday. They earlier fell to a more than three-year low of 2.119%. At the short end of the curve, two-year yields slipped to 1.581%, from Friday's 1.63%. "As long as there is global political tension, we're going to get downward pressure on U.S. yields," Stan Shipley, fixed-income strategist, at Evercore ISI in New York, said. Monday, Aug. 12, at 1727 EDT (2127 GMT): Price Current Net Yield % Change (bps) Three-month bills 1.9475 1.9838 -0.018 Six-month bills 1.885 1.9343 -0.016 Two-year note 100-85/256 1.5776 -0.052 Three-year note 99-252/256 1.5053 -0.067 Five-year note 101-66/256 1.4862 -0.077 Seven-year note 102-24/256 1.5566 -0.084 10-year note 99-220/256 1.6403 -0.094 30-year bond 102-180/256 2.1276 -0.119 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap -2.00 -0.75 spread U.S. 3-year dollar swap -4.50 -0.25 spread U.S. 5-year dollar swap -6.75 0.50 spread U.S. 10-year dollar swap -11.25 0.50 spread U.S. 30-year dollar swap -40.25 1.25 spread (Reporting by Gertrude Chavez-Dreyfuss; editing by G Crosse)