September 25, 2019 / 6:33 PM / 3 months ago

TREASURIES-U.S. yields rise on possible China trade deal; Trump probe shrugged off

    * Trump says China trade deal may come sooner than expected
    * U.S. sales of single family homes rise
    * Summary call between Trump, Ukraine president released
    * Trump asked Ukraine to investigate Biden
    * U.S. 5-year note auction shows lukewarm demand

 (Adds new comment, U.S. 5-year auction results, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 25 (Reuters) - Yields on U.S. Treasury
long-dated debt rallied from two-week lows on Wednesday, after
falling for seven straight sessions, bolstered by strong housing
data and comments by President Donald Trump about a possible
trade deal with China.
    Investors also largely shrugged off concerns about Trump's 
impeachment investigation, while a lackluster U.S. five-year
note auction helped extend a sell-off in Treasury prices.
    Analysts said market participants were more focused on trade
negotiations and economic data.
    Trump said on Wednesday a deal to end a nearly 15-month
trade war with China could happen sooner than people think.
"They want to make a deal very badly... It could happen sooner
than you think," Trump told reporters in New York.
    The remarks came a day after sharp comments on trade talks
with China at the United Nations General Assembly, where Trump
said he would not accept a "bad deal".
    "Investors are determined to trade everything President
Trump says about trade," said Jim Vogel, senior rates
strategist, at FTN Financial in Memphis, Tennessee.
    "Yesterday was the stern UN address that signaled risk
avoidance. This morning was an opposing reaction, led by stocks,
to his comment we might be surprised how quickly a deal comes
together."
    Trump also announced initial details of a trade deal with
Japan, which would open up Japanese markets to $7 billion worth
of U.S. products.
    As the bond market cheered positive U.S. pronouncements on
trade, investors kept a cautious eye on Trump's impeachment
investigation,  which has had a limited effect on Treasuries so
far.
    On Tuesday, U.S. House of Representatives Speaker Nancy
Pelosi said the Democratic-led House was moving forward with an
official impeachment inquiry against Trump, saying no one was
above the law. 
    The House will examine whether Trump sought Ukraine's help
to smear former Vice President Joe Biden, the front-runner for
the 2020 Democratic presidential nomination, Pelosi said.
    A summary of a July phone call on Wednesday showed Trump had
asked Ukrainian President Volodymyr Zelenskiy to investigate
Biden and a company that employed his son.
    "The impeachment is not a big issue until you get into a
recession," said Stan Shipley, fixed income strategist, at
Evercore ISI in New York.
    "Let's say you did impeach the president, which is very
unlikely, and you did convict him. Then trade wars will probably
look a lot better because whoever is going to replace him is not
going to be as hard-nosed on trade as he is," he added.
    In afternoon trading, U.S. 10-year note yields
rose to 1.721% from 1.635% late on Tuesday, after earlier
hitting a two-week low of 1.63%.
    Yields on 30-year bonds were also higher at
2.134%, from 2.095% on Tuesday.
    U.S. two-year yields were up at 1.645%, from
Tuesday's 1.594%.
    Also boosting yields was an upbeat U.S. housing report,
analysts said. Data showed sales of new single-family homes
rebounded more than expected in August by 7.1% to a seasonally
adjusted annual rate of 713,000 units.
    Treasury prices extended losses, pushing yields higher,
following a generally soft U.S. five-year note auction. 
    The note fetched a yield that was higher than the expected
yield at the bid deadline, suggesting tepid demand. There were
$94.9 billion in bids for a 2.32 cover, lower than last month's
2.48 as well as the 2.36 average.
    
    September 25 Wednesday 12:18 PM New York / 1618 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.875        1.9153    -0.016
 Six-month bills               1.865        1.9141    0.000
 Two-year note                 99-178/256   1.6555    0.062
 Three-year note               99-186/256   1.5946    0.063
 Five-year note                98-118/256   1.5757    0.065
 Seven-year note               98-68/256    1.6408    0.065
 10-year note                  99-80/256    1.7008    0.066
 30-year bond                  102-52/256   2.1497    0.055
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         0.00         2.00    
 spread                                               
 U.S. 3-year dollar swap        -2.75         1.00    
 spread                                               
 U.S. 5-year dollar swap        -6.25         0.75    
 spread                                               
 U.S. 10-year dollar swap      -13.00         0.25    
 spread                                               
 U.S. 30-year dollar swap      -43.75         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette
Baum and Tom Brown)
  
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