September 12, 2019 / 3:16 PM / 2 months ago

TREASURIES-U.S. yields rise on U.S.-China trade optimism

    * U.S. considering concessions to China trade deal
    * ECB cuts rates, restarts quantitative easing
    * U.S. core CPI rises, but Fed still expected to ease
    * Mnuchin: govt seriously considering 50-year bond issue
next year

 (Recasts, adds new comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 12 (Reuters) - U.S. Treasury yields turned
higher on Thursday after early declines, boosted by a report
suggesting that advisers to  President Donald Trump were
considering some concessions to a possible trade deal with
    U.S. yields earlier fell, moving in tandem with the European
bond market, after the European Central Bank cut interest rates
to a record low and said it would restart asset purchases to
boost its slumping economy.
    But that move in Treasuries faded after Bloomberg News
reported, that Trump administration officials have discussed
offering a limited trade agreement to China that would delay and
even roll back some U.S. tariffs for the first time in exchange
for Chinese commitments on intellectual property and
agricultural purchases.
    "The headlines on trade are pro-growth," said Jon Hill,
senior rates strategist, at BMO Capital Markets in New York.    
 "Trade is obviously hard to price and it could unwind with one
tweet, but incrementally, this is a risk-on impulse."
    The report also unwound the move in the European bond
market, after the ECB cut its deposit rate to an all-time low of
-0.5% from -0.4%. The bank said it will restart bond purchases
of 20 billion euros a month from November, it said in a
    Germany's 10-year bond yield earlier tumbled,
while 30-year debt fell almost 20 basis points at one point
. Italian 10-year bond yields hit a record low of
    German bunds though last traded higher on the day at
    In late morning trading, U.S. benchmark 10-year note yields
 rose to 1.752% from 1.733% late on Wednesday. 
    Yields on 30-year bonds were also higher at 2.221%
 from 2.208% on Wednesday. 
    U.S. two-year yields were up at 1.692%, from
Wednesday's 1.67%.
    The earlier ECB action overshadowed a stronger-than-expected
U.S. core inflation number, which posted the largest annual gain
in a year. The consumer price index excluding the volatile food
and energy components gained 0.3% for a third straight month.

    The inflation report, however, should not prevent the
Federal Reserve from raising interest rates later this month. 
    U.S. Treasury Secretary Steven Mnuchin, meanwhile, on
Thursday said the government is seriously considering issuing a
50-year bond next year.
    Andre Severino, global head of fixed Income at Nikko Asset
Management in London, said he is in favor of ultra-long bonds.
    "If there's ever a market to launch those, this is the time.
  From the government's perspective, it makes a lot of sense,"
said Severino.
    "If there's infrastructure projects that need to be done, I
think these are very attractive rates to finance those projects.
And given the debt profile of the U.S., I think there would be
tremendous demand for ultra-long bonds."
    Later on Thursday, the Treasury will sell $16.0 billion in
30-year bonds in an auction.
      September 12 Thursday 10:51 AM New York/1451 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.92         1.9614    -0.001
 Six-month bills               1.845        1.8933    0.010
 Two-year note                 99-170/256   1.6744    0.004
 Three-year note               99-174/256   1.6099    0.000
 Five-year note                98-94/256    1.5934    0.001
 Seven-year note               98-18/256    1.6696    -0.003
 10-year note                  99-16/256    1.7282    -0.005
 30-year bond                  101-12/256   2.202     -0.006
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        -1.00         0.50    
 U.S. 3-year dollar swap        -3.50         0.75    
 U.S. 5-year dollar swap        -6.50         0.50    
 U.S. 10-year dollar swap      -12.00         0.00    
 U.S. 30-year dollar swap      -42.00         0.25    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Raissa Kasolowsky and Chizu Nomiyama)
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