Trade worries keep US yield curve near flattest level since 2007

NEW YORK: The US yield curve held near its flattest level in over a decade on Monday as investors preferred longer-dated US government debt over short-dated issues on worries that a global trade war would slow inflation and business activity worldwide.

Anxiety about the viability of German Chancellor Angela Merkel's coalition government added safe-haven demand for US and German government bonds, analysts said.

At 10:19 a.m. (1419 GMT), the yield on 10-year Treasury notes was little changed at 2.853 percent, while the 10-year German Bund yield was unchanged at 0.309 percent, Reuters data showed.

The five-year to 30-year part of the US yield curve stood at 24.4 basis points, a tad flatter than late on Friday. It hit 22.8 basis points on Friday, which was the flattest level since July 2007.

"The path of least resistance is further flattening," said Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston. "There are more concerns about growth in the second half given (President Donald) Trump's trade policies."

The European Union has warned the United States that imposing import tariffs on cars and car parts would harm the US automotive industry and likely lead to counter-measures on $294 billion of US exports.

Escalating trade tensions are already being felt in Europe as a gauge of regional factory activity fell to an 18-month low in June.

In addition to the trade row, European politicians are scrambling to address migrant policy. On Sunday, German Interior Minister Horst Seehofer offered to quit and his conservative Christian Social Union party threatened to impose new border controls, casting a shadow over Merkel's coalition.

Growing trade frictions, however, have not yet hurt domestic manufacturers. US factory activity unexpectedly beat analyst expectations in June, according to the Institute for Supply Management.

Safe-haven demand tied to trade worries, together with signals from the European Central Bank to maintain an easy policy stance, produced positive total return of 0.10 percent for Treasuries in the second quarter. That pared their year-to-date loss to 1.08 percent, according to an index compiled by Bloomberg and Barclays.