April 10, 2018 / 7:50 PM / 9 months ago

TREASURIES-Yields rise after China allays trade fears, U.S. inflation data

    * U.S. producer prices, up more than expected, help yield
    * Chinese leader helps ease trade tension with U.S.
    * U.S. 3-year note auction gets tepid response

 (Recasts, adds fresh comment, results of auction, updates
prices in text, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 10 (Reuters) - U.S. Treasury yields rose on
Tuesday, sparked by a rally in stocks after a friendlier tone
from Chinese President Xi Jinping helped ease trade tensions and
following data showing a pick-up in U.S. inflation at the
producer level.
    The yield curve continued to flatten on Tuesday as investors
priced in interest rates hikes this year. The U.S. 5-year and
U.S. 30-year yield curve has flattened to 38.6 basis points
, the narrowest gap since late December 2011.
    "The speech from Xi didn't escalate trade tensions so we saw
a little move higher in yields," said Justin Lederer, Treasury
analyst at Cantor Fitzgerald in New York.
    Risk appetite increased on Tuesday after Xi set a positive
tone for easing U.S.-Chinese trade tensions. He promised to open
the country's economy further and lower import tariffs on
products including cars.
    Also helping boost yields was a report showing U.S. producer
prices increased more than expected in March. The producer price
index for final demand rose 0.3 percent last month after
increasing 0.2 percent in February.
    "We have (consumer price) inflation data coming tomorrow and
the key focus for the market is whether there would be
confirmation of a sustained path to higher inflation," said
Subadra Rajappa, head of U.S. rates strategy, at Societe
Generale in New York.
    In late trading, the U.S. 10-year yields were up slightly at
2.802 percent, from 2.789 percent late on Monday.
    U.S. 30-year yields rose to 3.023 percent , from
Monday's 3.017 percent.
    On the front end of the curve, U.S. 2-year yields edged up
to 2.315 percent, compared with 2.286 percent on
    U.S. 3-year yields rose to 2.444 percent, from
Monday's 2.419 percent. 
    Tuesday's auction of $30 billion in U.S. 3-year notes was
fair to average, analysts said. The note picked up a yield of
2.450 percent, slightly lower than that expected at the bid
    There were $85.5 billion in bids for a 2.85 bid-to-cover
ration, down slightly from last month's 2.94.
    "The response of the market has been relatively lackluster,"
said Aaron Kohli, director of interest rate strategy at BMO
Capital Markets in New York.
    "Not much here in the way of implications for 10s though
we'd offer that we're more confident buying in the 10-year than
in the long bond where the curve optics look a little worse," he
    On Wednesday, Treasury will auction $21 billion in reopened
U.S. 10-year notes.
      April 10 Tuesday 3:23PM New York / 1923 GMT
 US T BONDS JUN8               145-28/32    -0-6/32   
 10YR TNotes JUN8              120-196/256  -0-36/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.705        1.7362    -0.013
 Six-month bills               1.8925       1.9374    0.010
 Two-year note                 99-226/256   2.311     0.025
 Three-year note               99-206/256   2.4442    0.025
 Five-year note                99-110/256   2.623     0.022
 Seven-year note               99-72/256    2.7389    0.018
 10-year note                  99-148/256   2.7991    0.013
 30-year bond                  99-152/256   3.0206    0.004
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        29.75        -1.00    
 U.S. 3-year dollar swap        24.25        -1.00    
 U.S. 5-year dollar swap        12.25        -0.75    
 U.S. 10-year dollar swap        2.50         0.25    
 U.S. 30-year dollar swap      -14.75         1.25    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)
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