July 25, 2018 / 8:55 PM / 5 months ago

TREASURIES-Yields jump after Trump agrees to work with EU on trade

* Trump says agreed with EU to work to lower trade barriers

* Yields across maturities rise to session highs

* Treasury sells $36 billion in five-year notes (Updates headline, lead, yields, adds analyst quote on news of trade concessions)

By Kate Duguid and Karen Brettell

NEW YORK, July 25 (Reuters) - U.S. Treasury yields hits session highs across maturities on Wednesday afternoon after President Donald Trump and European Commission President Jean-Claude Juncker announced they had agreed to work on lowering trade barriers at a meeting in Washington.

“We agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods,” Trump told reporters at the White House with Juncker by his side. The European bloc has agreed to import more soybeans, lower industrial tariffs and work more on liquefied natural gas.

“Trade war type headlines have been the biggest driver of market sentiment – both for Treasuries and stocks – for quite a while now. This is the first time we’ve gotten good news,” said Thomas Simons, money market economist at Jefferies & Co.

The benchmark 10-year Treasury yield rose to a session high of 2.97 percent, up 2 basis points from Tuesday’s close. The two-year Treasury note yield was up 4 basis points to a session high of 2.68 percent.

Wall Street’s major indexes rose on the trade news and on soaring technology stocks.

“It’s more than just the bilateral European trade agreements that are improving here, it’s a sign that we maybe get better deals with all of our trading partners,” said Simon.

There was no mention of automotive imports, on which Trump has threatened to impose 25 percent tariffs, a move that would hit European carmakers like BMW and Volkswagen hard, as well as Japanese and South Korean car companies. The Commerce Department could recommend new tariffs as early as September after an investigation into whether car imports posed a risk to U.S. national security.

Tariffs are seen as a threat to economic growth as companies face rising costs. Slower growth would be a boon for Treasury prices as it would likely slow interest rate increases.

Treasury prices gained earlier on Wednesday, in line with Japanese government bonds, as investors doubted that the Bank of Japan will change its stimulus program when it meets next week.

The United States sold $36 billion in 5-year notes to strong demand, the second sale of $101 billion in coupon-bearing supply this week.

A $35 billion sale of 2-year notes on Tuesday was also well received.

The government will sell $30 billion in 7-year notes on Thursday. (Reporting by Karen Brettell and Kate Duguid; Editing by Will Dunham, Dan Grebler and Jonathan Oatis)

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