US bond prices rise, curve flattens as US-China trade war escalates

NEW YORK: US Treasury prices gained and the yield curve flattened further on Wednesday after the United States threatened tariffs on $200 billion worth of imports from China.

Domestic stocks opened lower, halting a four-day run of gains, after the White House warning and China's threats that it would hit back.

"The big story is the new round of tariffs and more importantly the real impact for the economy," said Ian Lyngen, head of US interest rates strategy at BMO Capital Markets in New York.

Last week, Washington imposed 25 percent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of US exports to China.

US producer price index data showed a 0.3 percent rise for final demand excluding food and energy in June, compared with 0.3 percent in May.

A Treasury auction for $22 billion in 10-year notes is scheduled for 1:00 p.m. EDT (1700 GMT), following weak demand on Tuesday for the sale of 3-year notes. An additional $14 billion in 30-year bonds will be offered on Thursday.

"Once we get past the auctions and start to assess what's going on with the risks to the real economy, I think the curve will continue to grind flatter," Lyngen said.

US benchmark 10-year yields were 2.4 basis points lower at 2.849 percent, and 3-year bonds were quoted at 2.949 percent at 9:34 a.m. EDT (1334 GMT).

The yield curve between 5-year and 30-year Treasuries dipped below 19 basis points for the first time in 11 years. The spread between 2-year and 10-year notes was at 26.50 basis points.

CPI data will be released on Thursday at 8:30 a.m. EDT (1230 GMT). Economists polled by Reuters expect year-over-year core inflation to be 2.3 percent for June, compared with 2.2 percent in May.