Top Stories
Top Stories

TREASURIES-Yields hold near 20-month lows as trade fears persist

Karen Brettell

(Adds Clarida comments, quote, updates prices)

* Fed's Clarida touts strong economy

* Core PCE revised downward in first quarter

NEW YORK, May 30 (Reuters) - Benchmark U.S. Treasury yields held just above 20-month lows on Thursday as concerns about the U.S.-China trade war denting global growth sustained demand for the safe haven debt. Yields rose earlier on Thursday as higher stock markets showed improving risk appetite, but retraced that move as stocks pared gains. Yields have tumbled this week on concerns about the U.S.-China trade war and tensions between Italy and the European Union, as well as on expectations that U.S. inflation will stay low. "The bond market is continuing to look at all of the negatives for the economy," said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle. "Overall the market continues to believe that the next move out of the Fed is going to be an easing move." Fed Board of Governors Vice Chair Richard Clarida said on Thursday that the U.S. economy was in "a very good place" and as close to policymakers' goals as it has been in decades. He also noted that policymakers stand ready to adjust policy if there are signs of a persistent shortfall in inflation or if other developments show risks to the economy. That came after data earlier on Thursday showed weaker inflation than expected in the first quarter. The core Personal Consumption Expenditures (PCE) index was revised downward to 1% in the first quarter, from 1.3%, even as gross domestic product growth was strong. "The thing that everyone is looking at is the core PCE number," said Tom Simons, a money market economist at Jefferies in New York. "Everybody in the market who's been calling for a rate cut now has even more fuel for their argument, inflation is too low, and the Fed needs to lower rates to stoke some growth on that front." Interest rate futures traders are pricing in an 81% chance of at least one rate cut by December, and a 40% chance of two cuts this year, according to the CME Groups FedWatch Tool.

(Editing by Nick Zieminski and Richard Chang)