October 17, 2019 / 6:26 PM / a month ago

TREASURIES-Bonds erase earlier losses as Brexit deal faces parliamentary obstacle

(Recasts with price change, adds DUP comments, updates prices)

* Brexit deal optimism fades before parliament vote

* China hopes to reach trade deal with U.S. soon

* Mid-Atlantic factory activity slowed in October

By Karen Brettell

NEW YORK, Oct 17 (Reuters) - U.S. Treasuries reversed earlier price weakness on Thursday as concerns grew that Britain’s parliament may not pass a deal designed to avoid a disorderly exit from the European Union.

Britain secured a deal to leave the EU on Thursday after years of divisive and frequently acrimonious discussions, including successive days of late-night talks this week.

Concerns that Britain’s parliament may not support the agreement, however, rose after it was announced.

British Prime Minister Boris Johnson must get the deal approved in a vote at an extraordinary session on Saturday intended to pave the way for an orderly departure on Oct. 31.

Northern Ireland’s Democratic Unionist Party (DUP) said on Thursday it could not support the agreement.

“The market is at this point really heavily influenced, if not totally driven, by headlines related to Brexit and whether or not it looks like a deal is on,” said Thomas Simons, a money market economist at Jefferies in New York.

Optimism that the deal will go through boosted risk sentiment earlier on Thursday, sending stocks higher and reducing demand for safe haven U.S. debt, which sent yields higher.

Yields came down from session highs, however, as doubts about the deal’s passage grew.

Benchmark 10-year note yields were little changed on the day at 1.743%, after earlier rising as high as 1.799%, a level last reached on Sept. 19.

Investors are also focused on the likelihood that the United States and China will reach a deal to end their protracted trade war, which has been blamed for harming global growth.

China hopes to reach a phased agreement and cancel tariffs as soon as possible, the Commerce Ministry said on Thursday, adding that trade wars have no winners.

U.S. data on Thursday added to concerns about a slowing U.S. economy, with a deceleration in factory activity in the mid-Atlantic region in October. U.S. homebuilding also fell from a more than a 12-year high in September.

It comes after data on Wednesday showed that U.S. retail sales fell for the first time in seven months in September.

The Federal Reserve is expected to cut rates when it meets on Oct. 29-30, though Fed policymakers are divided on whether further cuts are needed for the economy.

Reporting by Karen Brettell in New York Editing by Matthew Lewis

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