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TREASURIES-Yield curve steeper after Trump threatens China delisting

Karen Brettell and Kate Duguid

(Recasts; adds analyst quotes) NEW YORK, Sept 27 (Reuters) - The Treasury yield curve steepened on Friday afternoon following reports that President Donald Trump's administration is considering delisting Chinese companies from U.S. stock exchanges, a source briefed on the matter said. The move would be a radical escalation of trade tensions between the two countries and part of a broader effort to limit U.S. investments into China, the source said, confirming an earlier report by Bloomberg that sent shockwaves through financial markets. As stocks plunged, yields on shorter duration notes fell, while those at the long end rose. Treasury bonds act as a safe-haven in times of market volatility, driving prices up and yields down. "What we've seen in the afternoon is in part a reaction to the broad risk tone following these headlines around potential U.S. limitations on portfolio flows to China. The steepening really began to accelerate amid those headlines," said Jonathan Cohn, interest rate strategist at Credit Suisse in New York.

The two-year note yield was last 2.1 basis points

lower to trade at 1.634%. The benchmark 10-year yield was up less than a basis point to 1.694%, leaving the spread between the two bonds - the most commonly used

measure of the yield curve - at 5.6 basis points .

Yields had fallen earlier in the day after the Commerce Department reported that U.S. consumer spending barely rose in August and business investment remained weak, suggesting the economy was losing momentum as trade tensions linger. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1% last month as an increase in outlays on recreational goods and motor vehicles was offset by a decrease in spending at restaurants and hotels.

In another report on Friday, the Commerce Department said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.2% last month amid weak demand for electrical equipment, appliances and components, and computers and electronic products. "Some of the data was a little bit disappointing, for example, the consumer spending numbers and the durable orders numbers. Overall the data was OK, but a little bit lackluster and I think that's weighing on the tone a little bit," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

(Reporting by Karen Brettell and Kate Duguid; Editing by Dan Grebler and Nick Zieminski)