Treasuries outlook: yields little changed as market mood still uncertain

US Treasury yields were little changed on Friday, trading in narrow ranges, as risk appetite improved a bit with shares on Wall Street higher, but worries over a trade conflict with China kept investors cautious. "Yields...(are) still lower from a couple of weeks ago and that's because of the uncertainty on the US trade situation with China," said Lou Brien, market strategist at DRW Trading in Chicago.
Benchmark US 10-year yields were up on Friday, but have declined on a weekly basis for two straight weeks. China kept up its hostile rhetoric with the United States on Friday, saying through the official China Daily that US protectionism would hurt its own economy.
The editorial followed stinging remarks from China's commerce ministry on Thursday accusing the United States of being "capricious" over bilateral trade issues. "People believe that if we actually go into a trade war, the economy falls apart and inflation goes down," said Stan Shipley, strategist, at Evercore ISI in New York. "There is no sign that scenario has changed with the US and China."
In afternoon trading, US 10-year yields were up slightly at 2.9 percent, from Thursday's 2.897 percent. US 30-year yields were almost flat at 3.040 percent, compared with 3.043 percent on Thursday. On the short end, US two-year note yields edged up to 2.549 percent, from 2.541 percent late on Thursday.
A much calmer European bond market - after manic movements in the previous session - also helped lift US yields, analysts said. Italy's borrowing costs fell on Friday as the government bond market regained its footing after a sharp sell-off on Thursday, while the Greek bond market received a boost from a euro zone debt relief announcement.
The yield curve continued to steepen, with the spread between US 5-year notes and 30-year bonds increasing for a sixth straight session to as much as 28.7 basis points. That is the widest gap in more than a week. Another yield curve measure, the gap between US two-year and US 10-year notes, widened as well, to 37.2 basis points.