US long-term yields drift lower on trade, Brexit uncertainty

NEW YORK: US long-dated Treasury yields fell on Thursday, as persistent trade tension between China and the United States as well as Brexit uncertainty spurred investors to seek the safety of government bonds.

Upbeat US economic data on Thursday pushed yields a little higher, but that was short-lived, with the market mostly focused on the ongoing trade conflict between the two largest economies in the world.

China's commerce ministry said on Thursday it hopes the United States will show sincerity and take steps to correct its behavior, after both countries slapped new tariffs on each other's goods this week in an escalating trade war.

Some analysts were concerned that China will resort to other non-trade measures to fight back against the United States.

"We have been moving higher in yields ever since the last jobs report showed higher wages and now with the increased tension between the US and China, there are some concerns that the Chinese would back away from owning Treasuries," said Lou Brien, market strategist, at DRW Trading in Chicago.

China remains the largest non-US holder of Treasuries, but in July its holdings of US government bonds declined to $1.171 trillion. China's July outflow of Treasuries was the third in the past four months.

Uncertainty on Brexit was also a factor that weighed on US Treasury yields, analysts said, although British Prime Minister Theresa May said on Thursday she believed there was a growing desire to sit down and reach a deal.

But she also said the UK was preparing to leave the European Union without an agreement if there were no proposal that it deemed acceptable.

In morning trading, US 10-year yields were last at 3.066 percent, down from 3.083 percent late on Wednesday.

US 30-year yields were at 3.205 percent, from Wednesday's 3.237 percent.

US 2-year yields, meanwhile, were unchanged at 2.8076 percent, from levels on Wednesday.

Data showing better-than-expected US jobless claims and higher Philadelphia Federal Reserve manufacturing index lifted yields earlier in the session, but that was not sustained.