July 23, 2019 / 6:36 PM / 4 months ago

TREASURIES-Yields rise on trade hopes, before central bank meetings

 (Adds trade report, two-year auction results; updates prices)
    * Central bank policy in focus
    * IMF cuts global growth outlook
    * Treasury sells $40 bln two-year notes to soft demand

    By Karen Brettell
    NEW YORK, July 23 (Reuters) - U.S. Treasuries yields rose on
Tuesday on a report that U.S. negotiators are heading to China
to discuss trade terms, boosting hopes that the two countries
may deescalate a trade war that has weighed on economic growth.
    Trade Representative Robert Lighthizer and senior U.S.
officials will travel to Shanghai on Monday for face-to-face
trade meetings with Chinese officials, Bloomberg reported.
    It comes after the International Monetary Fund on Tuesday
lowered its forecast for global growth this year and next,
warning that more U.S.-China tariffs, auto tariffs or a
disorderly Brexit could further slow growth, weaken investment
and disrupt supply chains.             
    Benchmark 10-year Treasury yields             fell 9/32 in
price to yield 2.072%, up from 2.043% on Monday. The yields have
held between 2.023% and 2.078% for four consecutive trading
    Investors are focused on upcoming central bank meetings for
new signals about how many interest rate cuts are likely in
Europe and the United States.
    The European Central Bank (ECB) is expected to signal easier
monetary policy when it meets on Thursday.             
    The Federal Reserve is seen as certain to cut its benchmark
rate at its July 30-31 meeting.
    Though a 25-basis-point cut by the Fed is viewed as more
likely than a deeper one, some analysts have argued that a 50-
basis-point decrease would be more effective at stimulating the
economy and offsetting concerns about slowing global growth.
    “I think if they do 25 basis points both the bond market and
the stock market will sell off, because I think the market will
be disappointed they didn’t do 50 basis points,” said Tom di
Galoma, a managing director at Seaport Global Holdings.
    Interest rate futures traders are pricing in a 79% chance of
a 25-basis-point cut and a 21% chance of a 50-basis-point one,
according to the CME Group’s FedWatch tool.
    Expectations that the U.S. central bank could make a 50-
basis-point cut rose last week after New York Fed President John
Williams argued for fast action to stave off economic weakness,
but receded after the New York Fed said the comments were not
about upcoming policy action.                          
    The Treasury Department sold $40 billion in two-year notes
to soft demand on Tuesday, the first sale of $113 billion in
short and intermediate-dated notes this week.
    Indirect bidders bought the smallest share of the notes
since February.                          
    The government will also sell $41 billion in five-year notes
on Wednesday and $32 billion in seven-year notes on Thursday. 

 (Editing by Bernadette Baum)
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