US yields fall on trade, global growth worries

NEW YORK: US Treasury yields slid on Tuesday amid renewed concerns about a trade dispute between the United States and the European Union, as well as worries about the global economic outlook after the International Monetary Fund reduced growth forecasts for 2019.

The IMF warned that growth could slow further due to trade tensions and Britain's potentially disorderly exit from the EU.

"Traders should have expected the IMF news as its forecasts generally lag other reliable estimates, but investors chased risk last week on the idea that better recent data gave full-year results a chance to recover," said Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee.

Vogel said the IMF news sparked some bond buying and equity selling.

Further weighing on risk appetite, analysts said, was news that President Donald Trump threatened to impose U.S. tariffs on $11 billion worth of EU products, with both economies embroiled in a long-running aircraft subsidy dispute.

The years-long spat relates to mutual claims of illegal aid to plane giants, Netherlands-based Airbus and U.S.-based Boeing Co, to help them gain advantage in the world jet business.

Gains in Treasury prices came after losses on Monday in the midst of a mammoth offering by oil giant Saudi Aramco. Dealers historically lock in borrowing costs for corporate bonds they are underwriting by selling Treasuries as a hedge before the deal is completed. Once the bond is sold, the dealer buys back Treasuries to exit the rate lock.

Saudi Aramco is set to raise $12 billion with its first international bond issue after receiving more than $100 billion in orders. State-owned Aramco's bond issue, split into maturities ranging from three to 30 years, is seen as a gauge of potential investor interest in the Saudi company's eventual initial public offering.

In afternoon trading, U.S. 10-year note yields fell to 2.497%, slightly down from 2.519% late on Monday.

U.S. 30-year bond yields also dipped to 2.909%, from 2.924% on Monday.

On the short end of the curve, U.S. 2-year yields slipped to 2.343%, compared with Monday's 2.358%.

Also on Tuesday, the Treasury auctioned $38 billion in U.S. three-year notes, and the results were not as strong as expected. The bid-to-cover ratio fell to 2.47, below both last month's 2.56 and the 2.63 average. Indirect bidders were awarded 42.7%, also below the 49.5% previously and the 46.4% average.

After the auction, U.S. 3-year note yields were lower at 2.291%, from Monday's 2.314%.