Bond yields steady, trade tensions in focus

NEW YORK: US Treasury yields were steady on Thursday, after edging higher overnight on reports of new trade talks between the United States and China, as global trade tensions remained the main investor focus.

Reports of new talks offered a glimmer of hope for progress in resolving a conflict that has set world financial markets on edge.

The yields fell back to be little changed on the day, however, in the U.S. session.

The main focus is "the resumption of trade talks between U.S. and China, (and) just general trade noise," said Blake Gwynn, an interest rate strategist at NatWest Markets in Stamford, Connecticut.

"In the last few weeks where we've had very, very light planned events, it's been more about the unknown events that happen with regards to trade, Turkey or Italy." Gwynn said.

Benchmark 10-year notes were last down 3/32 in price to yield 2.861 percent, up from 2.851 percent on Wednesday but down from a high of 2.886 percent overnight.

The yield curve between 2-year and 10-year notes  steepened to 25 basis points, from 23 basis points on Wednesday, the flattest level since 2007.

Benchmark yields fell to their lowest levels in almost four weeks on Wednesday on concerns about the Turkish crisis hitting other emerging markets.

Emerging-market equities languished in bear territory on Thursday, though Turkey's lira extended its rally.

The lira has been helped after Turkey's banking watchdog tightened rules on Tuesday and Wednesday on swap transactions, which helped offset a government decision to impose tit-for-tat sanctions on some U.S. goods.

An upcoming focus for investors will likely be an August goal for Mexico and the U.S. to renegotiate the North American Free Trade Agreement (NAFTA), which has been beset by disagreements over automobile trade rules and other issues.

"The focus has mainly been on China for the last few weeks, but it looks like there could be some attention turning back to the NAFTA base of that trade talk," said Gwinn.

Mexico's Economy Minister Ildefonso Guajardo said on Wednesday that he had spoken with Canadian Foreign Minister Chrystia Freeland and was "hopeful" Canada could soon hold trilateral NAFTA talks with the United States and Mexico.