September 12, 2019 / 6:34 PM / 8 days ago

TREASURIES-U.S. bond yields rise on hopes on trade, soft auction

    * Conflicting reports on an interim U.S.-China trade deal
    * Reports of dissent on ECB restart of quantitative easing
    * U.S. core CPI rises, but Fed still expected to ease
    * Mnuchin: govt seriously considering 50-year bond issue
next year

 (Updates market action after 30-year bond sale)
    By Gertrude Chavez-Dreyfuss and Richard Leong
    NEW YORK, Sept 12 (Reuters) - U.S. Treasury prices fell on
Thursday with 10-year yields hitting five-week highs, following
a report that suggests advisers to President Donald Trump were
mulling an interim trade deal with China and soft demand at a
30-year bond auction.
    The bond market reversed earlier gains in step with its
European counterpart, after the European Central Bank cut
interest rates to a record low and said it would restart asset
purchases to boost its slumping economy.
    That move in Treasuries faded, however, after Bloomberg News
reported that Trump administration officials have discussed
offering a limited trade agreement to China that would delay and
even roll back some U.S. tariffs for the first time in exchange
for Chinese commitments on intellectual property and
agricultural purchases.
    "The headlines on trade are pro-growth," said Jon Hill,
senior rates strategist at BMO Capital Markets in New York.     
"Trade is obviously hard to price and it could unwind with one
tweet, but incrementally, this is a risk-on impulse."
    However, a CNBC report, citing a senior White House
official, said an interim deal was "absolutely not" on the
table.
    In midafternoon U.S. trading, U.S. benchmark 10-year note
yields were up 5.10 basis points at 1.7837% after
hitting rose 1.801%, their highest level since Aug. 5.
    Thirty-year bond yields were 5.80 basis points
higher at 2.2658%. They reached 2.28%, the highest since Aug.
12.
    Longer-dated yields were also pressured by comments from
U.S. Treasury Secretary Steven Mnuchin who said on Thursday the
government is seriously considering issuing a 50-year bond next
year.
    Other Treasury yields rose toward or above their 50-day
moving averages, a move seen as a technical sign of a possible 
further rise in yields.
    U.S. yields hit their session peaks following somewhat weak
demand for $16 billion of 30-year bonds, part of this week's $78
billion in coupon-bearing Treasury debt.
    Earlier, U.S. yields fell in reaction to the ECB's cut its
deposit rate to an all-time low of -0.5% from -0.4%. The bank
said it will restart bond purchases of 20 billion euros a month
from November.            
    Germany's 10-year bond yield earlier tumbled,
while 30-year debt fell almost 20 basis points at one point
. Italian 10-year bond yields hit a record low of
0.782%.
    U.S. and European yields reversed their earlier drop, 
following reports the ECB President Mario Draghi faced pushback
from representatives of Germany and France on the restart of QE.
This raised concerns whether his successor, Christine Lagarde, 
would be limited in her policy choices in the future.
  
    The earlier ECB action overshadowed a stronger-than-expected
U.S. core inflation number, an annual gain of 2.4%, the largest
in a year.
    The inflation report, however, should not prevent the
Federal Reserve from raising interest rates later this month.
September 12 Thursday 2:12PM EDT/ 1812 GMT
                               Price                   
 US T BONDS DEC9               159-30/32    -1         
 10YR TNotes DEC9              129-136/256  -0-96/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             1.9175       1.9588     -0.003
 Six-month bills               1.85         1.8985     0.015
 Two-year note                 99-147/256   1.7213     0.051
 Three-year note               99-134/256   1.6637     0.054
 Five-year note                98-36/256    1.6415     0.049
 Seven-year note               97-196/256   1.7167     0.044
 10-year note                  98-148/256   1.7819     0.049
 30-year bond                  99-180/256   2.2637     0.056
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap        -1.50         0.00     
 spread                                                
 U.S. 3-year dollar swap        -4.00         0.25     
 spread                                                
 U.S. 5-year dollar swap        -6.75         0.25     
 spread                                                
 U.S. 10-year dollar swap      -12.00         0.00     
 spread                                                
 U.S. 30-year dollar swap      -42.50        -0.25     
 spread                                                
 
 

    
 (Reporting by Gertrude Chavez-Dreyfuss, Richard Leong
Editing by Raissa Kasolowsky and Chizu Nomiyama)
  
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