US Treasury yields fall on North Korea concerns

NEW YORK: US Treasury yields fell on Thursday on safety buying after President Donald Trump called off a planned summit with North Korean leader Kim Jong Un and as the Turkish lira renewed its decline.

Trump cited Pyongyang's "open hostility," and warned that the US military was ready in the event of any reckless acts by North Korea.

Earlier on Thursday, North Korea repeated a threat to pull out of the unprecedented summit with Trump next month and warned it was prepared for a nuclear showdown with Washington if necessary.

"Some of the move seemed to be more of a classic risk off move on account of the North Korean headlines and the apparent lack of cooperation going forward," said Jonathan Cohn, an interest rate strategist at Credit Suisse in New York.

Turkey's lira weakened more than 3 percent on Thursday, giving up a large chunk of the gains it made after the central bank raised interest rates by 300 points a day earlier, as investors bet another hike would be needed to tame the sell-off.

Investors are also focused on an effort by Italy's coalition parties to name a euroskeptic economist as economy minister.

"It seems like the geopolitical backdrop is still something that is causing a flight to quality in US Treasuries," said Tom di Galoma, a managing director at Seaport Global Holdings in New York.

Demand for US bonds helped the Treasury sell $30 billion in seven-year notes on Thursday to strong demand, the final sale of $99 billion in coupon-bearing supply this week.

The bid-to-cover ratio was the highest since January.

Dealers had taken a larger than usual share for the two previous auctions, indicating that the market is struggling to absorb some larger auction sizes.

Bonds were also supported after minutes from the Federal Reserve May meeting on Wednesday were seen as giving no new clues that the US central bank is likely to raise rates an additional three times this year.

A number of Fed policymakers, including Chairman Jerome Powell, have been keen to stress they will tolerate inflation rising above the Fed's goal for a time without undue concern.

An additional two rate hikes this year, including one in June, are widely expected.