Yields fall on worries over US-China trade spat, data

NEW YORK: US Treasury yields dropped on Thursday, pressured by worries over a continuing US trade battle with China that triggered a cut in forecast earnings by

German carmaker Daimler, as well as US data that came in lower than expected.

Benchmark US 10-year note and 30-year bond yields have fallen in two of the last three sessions as US-China trade tensions increased.

"The trade war is still a factor," said Jim Vogel, interest rates strategist, at FTN Financial in Memphis, Tennessee. "There was an awful lot of buying of Treasuries overnight as people both watched Daimler and Italy."

On Tuesday, trade tensions between China and the United States intensified after President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods while Beijing warned it would fight back.

Daimler cut its 2018 profit forecast and said late on Wednesday import tariffs on cars exported from the United States to China would hurt sales of its Mercedes-Benz cars. Another German carmaker BMW said on Thursday it was looking at "strategic options" amid the trade war.

Italy also weighed on US yields after the Italian

government appointed two euroskeptics to head key finance committees.

In mid-morning trading, US 10-year yields fell to 2.896 percent, from Wednesday's 2.928 percent.

Ian Lyngen, head of US rates strategy at BMO Capital, said the 10-year yield is up against the 74-day moving average of 2.91 percent, which has proven to be a "focal point" rather than the breakout trigger that he initially envisioned.

US 30-year yields slid to 3.038 percent, compared with 3.064 percent on Wednesday.

On the short end, US two-year note yields slipped to 2.541 percent, from 2.562 percent late on Thursday.

Italy's 10-year government bond yield rose 14 basis points to a one-week high of 2.72 percent, while two-year borrowing costs rose 25 basis points to 0.84 percent.

Thursday's data did not help yields, with a US mid-Atlantic business survey for June coming in below expectations, while a weekly report on jobless claims showed mixed results.

The Philadelphia Fed business conditions index fell to 19.9, compared with expectations for a 29.0 reading. The index was at 34.4 in May.

"There was some buying after a miss in Philly Fed," said FTN's Vogel. "It is one of the first indicators of turns in economic sentiment."

US initial jobless claims, meanwhile, dropped 3,000 to a seasonally adjusted 218,000 for the week ended June 16. However, claims data for the prior week was revised to show 3,000 more applications received than previously reported.