August 13, 2019 / 3:54 PM / 4 months ago

TREASURIES-U.S. yields advance on China trade talks optimism

    * U.S. says some products to be removed from China tariff
list
    * China a says spoke with U.S. trade officials
    * U.S. CPI rises in July
    * U.S. 30-year yields rise from 3-year low
    * U.S. 2-year, 10-year yield curve flattest in 12 years

 (Updates with comments from U.S. trade representative's office,
adds yield curve flattening, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Aug 13 (Reuters) - U.S. Treasury yields rose on
Tuesday, as risk appetite improved, after the Trump
administration delayed imposing a 10% import tariff on laptops,
cellphones, video game consoles and a wide range of other
products made in China, easing trade tensions between the two
world's largest economies for now. 
    U.S. 10-year note yields hit session highs, while those on
30-year bonds rallied from more than three-year lows. Traders
earlier were bracing for 30-year yields sinking to a record low
below 2.08%.
    The U.S. yield curve, however, continued its flattening
trend, reflecting still-elevated anxiety. The spread between
U.S. 2-year and 10-year note yields, a closely watched metric
for recession signals, further narrowed to 1.4 basis points, the
flattest level in more than 12 years, according to Refinitiv
data.
    The delay in the U.S. tariffs had been scheduled to start
next month. The U.S. Trade Representative's Office action was
published just minutes after China's Ministry of Commerce said
Vice Premier Liu had a phone conversation with U.S. trade
officials. 
    "We got this trade headline and we saw equities jump 400
points, and that's led to some Treasury selling. So, it's
overall trade optimism for global markets," said Justin Lederer,
Treasury trader at Cantor Fitzgerald in New York.
    That said, market sentiment remained cautious overall.
    Tuesday's data showing a pickup in U.S. inflation in July
earlier pushed yields slightly higher. Analysts said the higher
inflation was a positive sign for the U.S. economy, but was
likely not enough to deter the Federal Reserve from cutting 
interest rates at the next policy meeting in September.
    The Labor Department said on Tuesday the U.S. consumer price
index climbed 0.3% last month, lifted by gains in the cost of
energy products and a range of other goods. Excluding the
volatile food and energy components, the CPI gained 0.3% after
rising by the same margin in June.
    "I really think we need to see a string of stronger
inflation data before we see a mutual change in sentiment that
is very focused on backward-looking inflation and recent data
showing that inflation is nowhere to be found in Europe and
Japan and it's sluggish in the U.S.," said Bill Merz, director
of fixed income at U.S. Bank Wealth Management in Minneapolis.
    In midday trading, U.S. benchmark 10-year Treasury note
yields rose to 1.684% from 1.64% late on Monday.
    Yields on 30-year bonds advanced to 2.143% from
2.13% on Monday. Thirty-year yields earlier hit 2.097%, their
lowest level since July 2016.
    At the short end of the curve, U.S. two-year yields rose to
1.656% from Monday's 1.58%.
    
      August 13 Tuesday 11:40 AM New York / 1540 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.965        2.0078    0.011
 Six-month bills               1.91         1.9608    0.026
 Two-year note                 100-46/256   1.6564    0.076
 Three-year note               99-188/256   1.591     0.083
 Five-year note                100-224/256  1.566     0.081
 Seven-year note               101-166/256  1.6236    0.067
 10-year note                  99-116/256   1.6847    0.045
 30-year bond                  102-84/256   2.1444    0.014
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -1.00         0.25    
 spread                                               
 U.S. 3-year dollar swap        -3.25         0.50    
 spread                                               
 U.S. 5-year dollar swap        -6.50         0.25    
 spread                                               
 U.S. 10-year dollar swap      -10.50         0.75    
 spread                                               
 U.S. 30-year dollar swap      -39.25         0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; editing by Steve
Orlofsky and Jonathan Oatis)
  
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