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TREASURIES-U.S. bond yields fall on U.S.-China trade flare-up

Richard Leong

* Trump threatens to slap more tariffs on Chinese goods

* U.S. to sell $84 bln in debt at quarterly refunding

* Fed's Harker sees softening in inflation as 'transitory'

(Updates to late U.S. market action) NEW YORK, May 6 (Reuters) - U.S. Treasury yields fell on Monday, as investors favored low-risk government bonds over stocks and other risky assets due to worries about a global slowdown stemming from renewed trade tension between China and the United States. Wall Street's major indexes at one point were down nearly 1% after U.S. President Donald Trump on Sunday threatened to increase tariffs on $200 billion of Chinese-made goods to 25% from 10%, reversing his February decision to hold them at 10% as the world's two biggest economies were making progress on trade negotiations. Investors fear that derailed trade talks between Washington and Beijing will touch off a global slowdown, analysts said, offsetting recent encouraging data on China, Europe and the United States. "It's primarily concern about trade," Jonathan Cohn, interest rate strategist at Credit Suisse in New York said of the reason behind the fall in yields. "If a trade deal falls through, there's more scope for yields to rally." In late U.S. trading, the yields on benchmark 10-year Treasury notes were 2.4998%, down 3 basis points from late on Friday, while the two-year yields were 2.3107%, down 2.8 basis points. The S&P 500 bounced off its initial lows, last down 0.39% Monday's drop in bond yields was mitigated by this week's Treasury supply and some investor caution in advance of the government's consumer price report due at 8:30 a.m. (1230 GMT) on Friday. The U.S. Treasury Department will sell $84 billion in coupon-bearing debt including $38 billion in three-year notes on Tuesday, $27 billion in 10-year notes on Wednesday and $19 billion in 30-year bonds on Thursday. These quarterly debt sales are expected to refund $55.4 billion to bondholders and to raise $28.6 billion in new cash for the federal government. "The risk backdrop is still pretty strong for Treasury supplies to be taken down smoothly," Cohn said. Signs of tame domestic inflation have also bolstered the case to own longer-dated bonds, analysts said. Some Federal Reserve officials said a recent pullback in price pressure is likely temporary and inflation should move back toward the central bank's 2% goal. Some recent weakness in inflation could be "transitory," suggesting no reason to adjust monetary policy at this point, Philadelphia Fed President Patrick Harker said on Monday.

The government's consumer price index likely rose 2.1% on an annual basis in April due to a spike in energy prices, stronger than the 2.0% pace the month earlier, according to analysts polled by Reuters.

Monday, May 6, at 1519 EDT (1919 GMT): Price

US T BONDS JUN9 147-26/32 14/3210YR TNotes JUN9 123-164/256 10/32Price Current NetYield % Change


Three-month bills 2.3725 2.4192 -0.012Six-month bills 2.3825 2.4509 -0.005Two-year note 99-227/256 2.3087 -0.030Three-year note 99-238/256 2.2746 -0.033Five-year note 99-204/256 2.2933 -0.037Seven-year note 99-224/256 2.3945 -0.03610-year note 101-20/256 2.4998 -0.03030-year bond 101-216/256 2.9069 -0.019YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 18.50 -0.4030-year vs 5-year yield 61.30 1.85


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 10.25 -0.50


U.S. 3-year dollar swap 7.00 -0.50


U.S. 5-year dollar swap 4.25 -0.25


U.S. 10-year dollar swap -2.25 -0.50


U.S. 30-year dollar swap -25.25 -1.25


(Reporting by Richard Leong Editing by Chizu Nomiyama, David Gregorio and Susan Thomas)