US yields hit 5-week lows on US-China trade jitters

NEW YORK: US Treasury yields fell on Wednesday with longer-dated yields hitting five-week lows as investors piled money into low-risk government debt amid an escalating trade battle between economic giants China and the United States.

The pickup in demand for Treasuries will likely support the rest of this week's $84 billion worth of debt supply for the government's quarterly refunding, analysts said.

The US Treasury will sell $27 billion in 10-year notes at 1 p.m. (1700 GMT) following a mediocre three-year note sale on Tuesday.

The United States said it will hike up tariffs on $200 billion worth of Chinese imports to 25% from 10% effective Friday, ahead of Chinese Vice Premier Liu He's arrival in Washington for two days of trade talks.

US officials have accused China of reneging over the past week on substantial commitments made during months of negotiations aimed at ending their trade war.

"It puts a lot of jeopardy that a deal won't get done," said Glen Capelo, head of US rates at Academy Securities in New York.

The abrupt deterioration in relations between the world's two largest economies and reduced prospects for a trade deal have rattled investor confidence about prospects for the global economy and business activities.

Wall Street's major equity indexes opened lower following two-day of sharp losses.

At 9:45 a.m. (1345 GMT), the yields on benchmark 10-year Treasury notes were down 0 basis point at 2.448% after hitting a five-week low of 2.426% earlier in the session.

Treasury yields bounced off their initial lows after US President Donald Trump said on Twitter China was "now coming to the US to make a deal."

In "when-issue" activity, traders expected the upcoming 10-year note to sell at a yield of 2.445%, which would be the lowest yield for this debt maturity at an auction since December 2017.

The Treasury will complete this week's refunding, which would raise $28.6 billion in fresh cash for the federal government, with a $19 billion 30-year bond auction on Thursday.

Meanwhile, the trade flare-up between Beijing and Washington has increased expectations the Federal Reserve would lower key lending rates to combat an economic slowdown.

"This will up the ante for the Fed to move," said Mary Ann Hurley, vice president of fixed income at D.A. Davidson in Seattle.

Interest rates futures implied traders see a 59% chance the Fed would lower its target range on key borrowing costs by a quarter point to 2.00%-2.25% at its Dec. 10-11 meeting, little changed from late on Tuesday, according to CME Group's FedWatch program.