US yields fall, curve flattest in over a decade

NEW YORK: US Treasury yields moved lower on Tuesday, pinning the yield curve at its flattest level in nearly 11 years as China pledged to keep its currency stable.

The yuan fell to an 11-month low against the dollar as trade tensions grew between the United States and China, the world's two biggest economies. The Trump administration is prepared to impose tariffs on $34 billion of Chinese goods on July 6. Beijing has said it will respond with duties on American-made imports.

Fears of a full-blown global trade war have spurred bets that slower global growth and inflation would mean that longer-dated US yields would not rise much even if the Federal Reserve hikes short-term interest rates, traders and analysts said.

"We have the safety bids on the long-end of the yield curve due to trade concerns," Milstein said.

Safe-haven demand for bonds has narrowed the spread between short- and long-dated Treasury yields. Some investors are worried short-term yields could rise above long-term ones. This phenomenon, known as a curve inversion, has happened about 12 to 18 months before the past five US recessions.

At 11:40 a.m.(1540 GMT), the spread between two-year and 10-year yields contracted to 30.40 basis points after touching 29.59 basis points, which was the tightest since August 2007.

The five-to-30-yield yield gap hit 22.60 basis points, the slimmest since July 2007, Reuters data showed.

After opening the day flat, yields fell slightly as the session progressed.

"There's definitely some short-covering for the holiday," said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York.

Low trading volume ahead of the US July Fourth holiday left the Treasury market more sensitive to buying pressure, Lederer said.

The yield on benchmark 10-year Treasury notes was down 2 basis points at 2.838 percent, while the 30-year yield was 2 basis points lower at 2.967 percent.

The US bond market will close early at 2 p.m. (1800 GMT) and will stay shut on Wednesday.