August 29, 2019 / 2:47 PM / 17 days ago

TREASURIES-Yields rise on optimism about U.S.-China trade talks

    * China says discussing with U.S. next round of trade talks
    * U.S. 30-year yields rise from record lows hit on Wednesday
    * U.S. GDP 2nd estimate for Q2, in line with expectations

 (Recasts, adds comment, byline, table, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Aug 29 (Reuters) - U.S.  Treasury yields rose on
Thursday after two days of declines, as China and the United
States said they were discussing further trade talks scheduled
for September, encouraging hopes of progress in their long
drawn-out conflict.
    U.S. 30-year yields recovered from record lows hit during
the previous session. Yields on other maturities such as
benchmark 10-year notes advanced as well, as a relentless rally
in Treasuries took a breather, for now.  
    The U.S. 2-year and 10-year yield curve was still inverted
on Thursday, with short-dated yields above long-dated ones, but
the spread has narrowed a bit -1.8 basis points.
An inverted yield curve is widely considered a signal that the
economy is headed for recession.
    China though sounded hopeful on the trade negotiations on
Thursday.
    "The most important thing at the moment is to create
necessary conditions for both sides to continue negotiations,"
China's commerce ministry spokesman Gao Feng said during a
weekly briefing, adding China was lodging "solemn
representation" with the United States.
    Stan Shipley, fixed-income strategist, at Evercore ISI in
New York said the China news was a positive sign for U.S.
Treasury yields. 
    "The fact that China is not going to retaliate, that's good
news."
    In morning trading, U.S. benchmark 10-year Treasury note
yields  rose to 1.509% from 1.468% late on
Wednesday. Since the beginning of the year, 10-year yields have
fallen by 118 basis points.
    Yields on 30-year bonds advanced to 1.988% from
1.939% on Wednesday, rallying from record lows of 1.905% touched
the day before.
    At the short end of the curve, U.S. two-year yields rose to
1.526% from Wednesday's 1.504%.
    U.S. yields held up well after data showed a second reading
of gross domestic product increased at a 2.0% annualized rate.
That was revised down from the 2.1% pace estimated last month.
The downward revision was in line with economists' expectations.

    More importantly, growth in consumer spending, which
accounts for more than two-thirds of U.S. economic activity,
surged at a 4.7% rate in the second quarter. That was the
fastest since the fourth quarter of 2014 and was a slight upward
revision from the 4.3% pace estimated last month.
    Paul Ashworth, chief U.S. economist, said the data suggested
that "any further slowdown in the third quarter will be modest."
    
      August 29 Thursday 10:24AM New York/1424 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.945        1.9872    -0.005
 Six-month bills               1.84         1.883     0.003
 Two-year note                 99-245/256   1.522     0.018
 Three-year note               100-40/256   1.4458    0.024
 Five-year note                99-66/256    1.4045    0.035
 Seven-year note               102-176/256  1.465     0.042
 10-year note                  101-4/256    1.5147    0.047
 30-year bond                  105-184/256  1.9955    0.056
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        -0.75         0.50    
 spread                                               
 U.S. 3-year dollar swap        -4.50         0.50    
 spread                                               
 U.S. 5-year dollar swap        -6.25         1.25    
 spread                                               
 U.S. 10-year dollar swap      -10.25         0.75    
 spread                                               
 U.S. 30-year dollar swap      -41.00        -0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama and Bernadette Baum)
  
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