October 30, 2018 / 2:42 PM / 14 days ago

TREASURIES-U.S. yields tick up as stocks recover on trade prospects

NEW YORK, Oct 30 (Reuters) - Yields on U.S. Treasury bonds rose modestly on Tuesday as equities recovered from Monday’s sell-off after President Donald Trump said he believed “a great deal” on trade can be struck with China, but warned new tariffs were ready if talks fail.

Treasury prices fell as risk appetite increased, with U.S. stocks up slightly in mid-morning after a mixed opening at the bell.

The yield on the benchmark 10-year government bond was up just over 2 basis points, while the S&P 500 was up 0.95 percent and the Dow Jones Industrial Average was up 0.83 percent as trade-war fears eased and blue-chip companies including GE and Coca-Cola reported earnings.

“After yesterday’s volatile session, Treasury prices opened a little weaker. They are continuing to follow equities,” said Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald.

Washington was preparing to announce tariffs on all remaining Chinese imports by early December if talks next month between Trump and his counterpart President Xi Jinping fail to ease a trade war, Bloomberg News reported on Monday.

The report sparked a wild ride on Wall Street on Monday, with the Dow falling more than 900 points from its high and the benchmark S&P 500 closing within a whisker of confirming correction territory. U.S. Treasury debt, which functions as a safe-haven investment, rises in price in times of volatility.

In an interview with Fox News Channel later on Monday, Trump said he thinks there will be “a great deal” with China on trade, but warned new tariffs will be implemented if a deal is not possible.

Treasury yields have fallen in October as companies have reported that tariffs, rising borrowing costs and a slowdown in China hurt earnings in the third quarter and are expected to do the same in the fourth.

The week’s heavy economic data calendar kicked off on Tuesday with reports that the U.S. consumer confidence index was at its highest since September 2000, according to the Conference Board, although the Case-Shiller composite index of home prices in 20 metropolitan areas fell more than expected in August.

The ADP private payrolls report is due on Wednesday, the Markit PMI Manufacturing Index and the ISM Manufacturing Index on Thursday, and U.S. non-farm payrolls report on Friday.

On Wednesday, the Treasury will make its quarterly refunding announcement. Lederer said he believes that two-, three-, and five-year note auctions will be increased by $1 billion a month, and that seven-, 10- and 30-year bond auctions will increase by $1 billion a quarter. (Reporting by Kate Duguid Editing by Susan Thomas)

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