January 8, 2019 / 7:19 PM / 5 months ago

TREASURIES-Yields rise as trade deal optimism boosts risk sentiment

 (Adds auction results, updates prices)
    * Trump tweets that China trade talks are going well 
    * Three-year note auction sees soft demand

    By Karen Brettell
    NEW YORK, Jan 8 (Reuters) - U.S. Treasury yields rose for a
third day on Tuesday, in line with higher U.S. stocks, as
optimism over a trade deal between the United States and China
boosted risk appetite.
    Trade talks will continue in Beijing for an unscheduled
third day as the world's two largest economies looked to resolve
their bitter trade dispute.             
    U.S. President Donald Trump earlier on Tuesday wrote on
Twitter that “Talks with China are going very well!”
    “I think the market’s reacting to the latest Trump tweet
about progress on the China negotiations,” said Subadra Rajappa,
head of U.S. rates strategy at Societe Generale in New York.
    Still, uncertainty over whether a deal with China will be
struck and concerns about the impact of an ongoing partial U.S.
government shutdown were seen as weighing on risk sentiment in
the short term.
    Bond yields and U.S. stocks have risen since Federal Reserve
Chairman Jerome Powell on Friday said he was aware of the risks
of an economic slowdown and would be patient and flexible in
policy decisions this year.             
    That came after a strong U.S. jobs report for December
showing employers added 312,000 workers to their payrolls.
    Benchmark 10-year notes             fell 9/32 in price on
Tuesday to yield 2.712 percent, up from 2.682 percent on Monday.
The yields fell as low as 2.543 percent in overnight trading on
Thursday before the jobs report, which was the lowest since
January 2018.
    The yields have tumbled from 3.05 percent at the beginning
of December as concerns about slowing global growth and Fed rate
increases prompted a sharp selloff in stocks.
    Market volatility has boosted expectations that the U.S.
central bank will not raise rates this year even though the Fed
has signaled two hikes are likely.
    Investors will be looking for new clues on interest rate
policy when the Fed releases minutes from its December meeting
on Wednesday and in a speech on Thursday by Powell.
    Yields rose to session highs on Tuesday after the Treasury
Department sold $38 billion in three-year notes to relatively
soft demand, the first sale of $78 billion in coupon-bearing
supply this week.
    The ratio of bids to notes offered              was 2.44,
the lowest reading since April 2009.                          
    The government will also sell $24 billion in 10-year notes
on Wednesday and $16 billion in 30-year bonds on Thursday.

 (Editing by Bernadette Baum and Meredith Mazzilli)
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