August 31, 2018 / 7:10 PM / 2 years ago

TREASURIES-Bond yields slide as U.S.-imposed NAFTA deadline looms

(Recasts to reflect effect of trade talks; updates yields; adds analyst quote)

By Kate Duguid

NEW YORK, Aug 31 (Reuters) - U.S. Treasury yields across maturities fell as Canada and the United States attempted to negotiate a new North American Free Trade Agreement ahead of a deadline on Friday set by President Donald Trump.

U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland were unable to clinch a deal despite meeting late into the evening on Thursday. They reconvened on Friday, with Mexico on standby to return to talks aimed at ending a year of hard-fought three-way negotiations.

A Canadian official said slightly before 3 p.m. ET that talks between the two countries had concluded and Freeland was to hold a press conference at 4:30 p.m. ET.

Treasuries have benefited from rising trade tensions, as investors see them as a safe-haven investment and the most likely beneficiary of Trump’s protectionist policies. The 10-year yield was down nearly a basis point from Thursday’s close, last at 2.851 percent.

“I think (Friday’s bid on Treasuries) is about uncertainty on whether this NAFTA trade deal is going to get done by the U.S.-imposed deadline,” said Lou Brien, market strategist at DRW Trading.

He added that the market’s movements on Friday may be exacerbated by reduced liquidity ahead of a holiday weekend.

Trade tensions had also ratcheted up after the European commissioner in charge of trade on Thursday said the European Union’s detente on tariffs with the United States had not put to rest “profound disagreements” on trade policy. A Bloomberg report that Trump was considering implementing $200 billion worth of new sanctions on Chinese goods next week also added to trade tensions.

In the coming week, “a reaction from the United States’ largest trading partner should prove the most relevant tone-setting event,” BMO Capital Markets analysts wrote.

The two-year note yield was down 2.4 basis points from Wednesday’s close, last at 2.629 percent.

Heading into the coming week, analysts said buying of Treasuries is unlikely to let up. Yields fell on Thursday after Argentina’s central bank hoisted its benchmark interest rate 15 percentage points to 60 percent, knocking the country’s peso down 20 percent and sending emerging market investors to safer places.

Investors were looking for signs on Friday that Argentina would unveil a fiscal package austere enough to ease fears about the government’s ability to pay its debt next year. (Reporting by Kate Duguid Editing by Paul Simao and Dan Grebler)

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