August 21, 2018 / 1:45 PM / 4 months ago

TREASURIES-Yields rise from six-week lows before Fed minutes

* Fed minutes on Wednesday, Powell speech on Friday in focus

* Trump “not thrilled” with rate increases under Powell

* U.S. and China to meet for trade talks

By Karen Brettell

NEW YORK, Aug 21 (Reuters) - U.S. Treasury yields rose on Tuesday on improving risk appetite and as investors waited on the minutes from the Federal Reserve’s August meeting on Wednesday and a speech by Fed Chairman Jerome Powell on Friday.

U.S. stocks were stronger on Tuesday while Italian government bonds rallied after Moody’s extended the deadline for its review of the country’s rating, providing some relief for investors who expected a downgrade imminently.

“We come in a little higher in yields, with bunds and gilts under pressure and Italy a little better,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

With no major economic data, however, investors were mainly focused on U.S. central bank policy for new clues on whether four interest rate hikes are likely this year.

Expectations for two additional rate hikes this year declined a day after U.S. President Donald Trump said he was “not thrilled” with the Fed under Powell, his own appointee, for raising interest rates and said the U.S. central bank should do more to help him to boost the economy.

Futures traders are pricing in a 96 percent chance of a rate hike in September, up from 94 percent on Monday, and a 63 percent chance of a further increase in December, down from 64 percent, according to the CME Group’s FedWatch Tool.

“The overtone of Trump trying to persuade the Fed to stop aggressively tightening is probably one thing the market’s focused on,” said Tom di Galoma, a managing director at Seaport Global Holdings in New York. “The big trade overnight has been the weakness of the dollar because of Trump’s comments about Powell.”

Powell is due to speak on Friday at the Kansas City Fed’s economic symposium in Jackson Hole, Wyoming.

In the middle of international trade disputes, Trump also accused China and Europe of manipulating their respective currencies and said that he does not expect much progress from trade talks with China this week in Washington.

Benchmark 10-year notes fell 5/32 in price to yield 2.841 percent, up from a low of 2.815 percent on Monday, the from the lowest since July 6.

The yield curve between 2-year and 10-year notes steepened to 24 basis points, from 23 basis points on Monday, which was the flattest level since 2007.

Editing by Susan Thomas

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