By Daniel Kruger 

U.S. government bonds were little changed Monday ahead of the scheduled sale of $115 billion of short- and intermediate-term notes.

The yield on the benchmark 10-year Treasury note recently traded at 3.063%, according to Tradeweb, from 3.067% Friday. Bond yields rise as prices fall.

Yields steadied and stocks prices gained as investors perceived risks of a trade war with China had cooled. Treasury Secretary Steven Mnuchin told Fox News on Sunday that the U.S. was "putting the trade war on hold" and wouldn't assess tariffs on Beijing while the two sides talked.

The gap between two- and 10-year Treasury yields, known as the yield curve, declined Monday to about 0.495% percentage point, reversing last week's steepening trend. Short-term yields rose the most, with two-, five- and seven-year auctions occurring in the short- and intermediate-term parts of the yield curve. Many investors attribute at least some of the rise in yields this year to an increase in bond sales needed to fund the government.

The Treasury said in January that it would boost debt sales by $42 billion in the period from February through April, and in May it said it would add an additional $27 billion of sales on top of the earlier increase.

The flatter yield curve means investors "are not getting paid very much" to take the risk that inflation could accelerate during the life of the debt, said Michael Cloherty, head of interest-rate strategy at RBC Capital Markets. Inflation is a threat to the value of a bonds' fixed-interest payments.

Some investors will also be watching for comments about the path of interest-rate increases from three Fed officials speaking Monday. Investors see a 53% likelihood that the Federal Reserve will raise interest rates four times in 2018, according to CME Group data. Fed officials penciled in three increases after their December and March meetings.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

 

(END) Dow Jones Newswires

May 21, 2018 12:03 ET (16:03 GMT)

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