February 19, 2019 / 3:50 PM / 6 months ago

TREASURIES-Yields fall with FOMC, U.S.-China trade talks in view

NEW YORK, Feb 19 (Reuters) - Treasury yields fell on Tuesday morning as trade talks between the United States and China neared their March 1 deadline and ahead of the release of minutes from the Federal Reserve’s January policy-setting meeting.

Yields were down between 2 and 3 basis points, with yields on the shorter end of maturities falling faster than those on the longer end, steepening the yield curve modestly.

The Federal Open Market Committee (FOMC) is slated to release minutes from its January meeting on Wednesday, which will be carefully scrutinized by investors after a dovish statement in January. Fed Chair Jerome Powell had said central bank policy makers would be “patient” after signs of an economic slowdown roiled financial markets in December.

Two-year yields, a proxy for market expectations for rate hikes, were 2.4 basis points lower, last at 2.496 percent, suggesting investors expect the minutes to reaffirm a slower pace of rate hikes.

“The FOMC minutes in particular for U.S. rates will be worth watching. We’re looking for more details on balance sheet discussions - not only the timing of when runoff will end, but potential discussions around what the reinvestment policy will look like, what the composition of the portfolio will look like,” said Jonathan Cohn, interest rate strategist at Credit Suisse.

Investors will also watch if “(FOMC members) follow through with some of the commentary about shortening the maturity profile.”

The United States and China will start a new round of trade talks between in Washington on Tuesday, with follow-up sessions at a higher level later in the week, the White House said.

A round of negotiations that ended in Beijing last week without a deal, but officials reported progress on contentious issues between the world’s two largest economies.

Treasuries are a safe-haven investment that draw investors in times of global tumult. Tuesday’s rise in Treasury prices, and fall in yields, suggested a decreased appetite for risk.

Yields were modestly lower in early morning trade until they fell around 2 basis points at 8:30 a.m. ET (1330 GMT). The move seemed driven by technical, rather than fundamental factors.

“To be honest, I don’t see any specific underlying driver for it, so it may be more a function of a big flow going through,” said Cohn.

The benchmark 10-year government yield was down 2.7 percent, last at 2.639 percent. The 30-year yield was 2.5 basis points lower, last at 2.972 percent. (Reporting by Kate Duguid; Editing by David Gregorio)

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