Treasury yields edged up on Monday, extending weekend gains as trade tensions eased a day after President Donald Trump pledged to help Chinese telecommunications company ZTE Corp, which has been penalized for violating US sanctions with Iran. US Commerce Secretary Wilbur Ross on Monday confirmed that the office was exploring "alternative remedies" to punish ZTE following the president's tweet on Sunday, which said too many jobs in China had been lost.
The telecommunications company had shut down its main operations after the Commerce Department banned US companies from selling components to ZTE for seven years after it illegally shipped goods made with US parts to Iran and North Korea.
Monday's moves were modest, with the 2-year note yield gaining less than a basis point. Nevertheless, its peak at 2.552 percent in morning trade was the highest it has been since August 2008. The benchmark 10-year government yield remained range-bound, last at 2.993 percent, just below the 3 percent level it broke through more than two weeks ago for the first time since January 2014.
"We're just bopping around in a range on either side of 3 percent. If there was anything (driving yields up), it was maybe the comments from Trump over the weekend concerning trade with China that may have taken a bit of the concern out of the market," said Lou Brien, market strategist at DRW Trading in Chicago.
The 2-year yield, which is more sensitive to traders' views on Federal Reserve policy, has risen 6.4 basis points this year, driving the yield curve flatter.
Traders expect the US central bank will raise key overnight borrowing costs at least two more times in 2018, with the next hike likely at its June 12-13 policy meeting.
A "June (rate hike) is pretty much baked in," said John Canavan, market strategist at Stone & McCarthy Research Associates. "We are still expecting to see the Fed tighten further into 2019."
Traders' view of more rate hikes, together with softer-than-expected data on jobs and inflation in April, has caused investors to increase their curve flattening positions, where they favour longer-dated Treasuries over shorter-dated issues, analysts said.
The spread between 5-year and 30-year Treasury yields was 27.2 basis points, roughly 1 basis point wider from late Friday. The gap had narrowed slightly below 26 basis points earlier Monday, which was the slimmest since July 2007, Tradeweb data showed.
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