January 18, 2019 / 8:47 PM / 7 months ago

TREASURIES-Wall Street rally lifts U.S. bond yields to 3-week peaks

    * U.S. factory output rises more than forecast in December
    * Hopes for end to U.S.-China trade spat boosts Wall Street 
    * U.S. consumer sentiment sags to weakest since Trump's win
    * U.S. stock, bond markets to close Monday

 (Updates market action, adds quotes)
    By Richard Leong
    NEW YORK, Jan 18 (Reuters) - U.S. Treasury yields climbed to
three-week highs on Friday as investors piled back into Wall
Street on hopes Washington and Beijing were moving to end their
trade dispute as well as on stronger-than-expected data on
manufacturing output.
    Bond yields increased for a second week as 10-year yields
climbed further from the near one-year low on Jan. 4.
    "It's a belief the thaw between the U.S. and China is
growing so that's stabilizing markets. The risk-on environment
is weighing on bonds here," said Craig Bishop, lead strategist
of U.S. fixed income strategies at RBC Wealth Management in
    The improved outlook on trade came in the aftermath of a
Wall Street Journal report that U.S. Treasury Secretary Steven
Mnuchin was considering lifting some or all tariffs imposed on
Chinese imports. The Treasury denied Mnuchin floated such a
    The S&P 500 index was up 1.10 percent, while the Dow
 was 1.15 percent higher and the Nasdaq was up
0.81 percent.
    The yield on benchmark 10-year Treasury notes
hit a three-week peak, last trading at 2.781 percent, 3.4 basis
points above Thursday's close.
    The 10-year yield climbed about 8 basis points this week,
its biggest weekly rise since the week of Nov. 2, according to
Refinitiv data.
    Treasury yields have risen partly on competition from
higher-yielding corporate bonds. Companies have raised $25.7 
billion through investment-grade debt sales this week, according
to IFR.
    Worries about a slowing U.S. economy eased following a
Federal Reserve report that showed industrial production grew
0.3 percent in December as manufacturing output surged, more
than what analysts had forecast.
    But consumer sentiment deteriorated in early January to its
weakest since October 2016, before Donald Trump's presidential
victory, according to a University of Michigan survey.

    The federal government shutdown, which is in its 28th day,
remains a concern for investors as well as consumers. 
    Given the recent batch of mixed data and volatility in the
stock market, Fed officials have signaled they are in no hurry
to raise interest rates again after a rate hike last month.
    Interest rates futures implied traders saw about a 27
percent chance of a rate increase by year-end, up from 19
percent a week earlier but down from 40 percent a month ago, CME
Group's FedWatch program showed.
    Earlier Friday, New York Fed President John Williams said
the U.S. central bank must be patient and guided by data when
deciding whether to raise interest rates. San
Francisco Fed chief Mary Daly said she was leaning toward
pausing rate hikes for a while.
    U.S. financial markets will be closed on Monday for the
Martin Luther King Jr. holiday.
January 18 Friday 3:04PM New York / 2004 GMT
 US T BONDS MAR9               144-19/32    -14/32    
 10YR TNotes MAR9              121-44/256   -11/32    
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.355        2.4012    -0.009
 Six-month bills               2.4375       2.5013    -0.004
 Two-year note                 99-202/256   2.6118    0.048
 Three-year note               99-182/256   2.6013    0.049
 Five-year note                100-8/256    2.618     0.049
 Seven-year note               99-144/256   2.6944    0.046
 10-year note                  102-236/256  2.7824    0.035
 30-year bond                  105-112/256  3.0943    0.018
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       16.90        -1.65     
 30-year vs 5-year yield       47.50        -2.70     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        15.25        -1.50    
 U.S. 3-year dollar swap        11.75        -1.00    
 U.S. 5-year dollar swap         8.75        -0.25    
 U.S. 10-year dollar swap        3.25         0.00    
 U.S. 30-year dollar swap      -18.25         0.75    

 (Reporting by Richard Leong; Editing by Chris Reese and Andrea
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