December 12, 2018 / 3:53 PM / a year ago

TREASURIES-Yields rise as stocks rally on U.S.-China trade optimism

    * Trump optimism on U.S.-China trade talks lifts yields
    * Easing Brexit tension helps risk assets
    * Tame U.S. CPI data dampens rate hike view 

 (Recasts, adds comment, table, byline, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Dec 12 (Reuters) - U.S. Treasury yields climbed on
Wednesday, in tandem with gains in U.S. equities, after
President Donald Trump said trade talks with China were
progressing and more meetings were likely among officials of
both countries. 
    The rise in yields was across the board, with those on U.S.
long-dated debt climbing for three straight sessions.
    In an exclusive interview with Reuters, Trump said on
Tuesday China was buying a "tremendous amount" of U.S. soybeans,
and bilateral talks were underway by phone, with more meetings
likely between both countries.
    U.S. yields also benefited after the Wall Street Journal
reported that China was preparing to replace an industrial
policy that will help increase access for foreign companies.
    "The China headline on granting access to foreign firms is a
positive development," said Subadra Rajappa, head of U.S. rates
strategy, at Societe Generale in New York. "This is one of the
many things that the U.S. had in its negotiation or in the
bargaining table with China."
    Further adding to the selloff in Treasuries was the easing
of tensions with respect to Britain's planned exit from the
European Union, or Brexit.
    Prime Minister Theresa May vowed to fight an attempt to
unseat her and warned hardline eurosceptic colleagues that they
risked delaying or even stopping Brexit here
    At least 158 of May's Conservative party colleagues publicly
indicated support for her before a no-confidence vote on
Wednesday, enough for a simple majority.
    The rise in yields, however, was tempered by a tame reading
of U.S. consumer prices last month.
    Data showed U.S. consumer prices were unchanged in November,
the weakest reading in eight months, backing expectations that
the Federal Reserve could slow the pace of interest rate hikes
next year.
    The Labor Department said last month's flat reading in its
Consumer Price Index followed a 0.3 percent rise in October, and
was due to a sharp decline in gasoline prices. Excluding the
volatile food and energy components, the CPI increased 0.2
percent, matching October's gain.
    The data, however, won't prevent the U.S. Federal Reserve
from raising interest rates next month, as underlying inflation
remained stable.
    Andrew Hunter, U.S. economist at Capital Economics in London
said the CPI report suggested the "Fed won't hesitate to move to
the sidelines if activity growth begins to slow more sharply."
    In late morning trading, U.S. 10-year note yields rose to
2.902 percent, from 2.881 percent late on Tuesday.
    U.S. 30-year bond yields were also up at 3.141 percent
, from 3.128 percent on Tuesday.
    On the short end of the curve, U.S. two-year yields were
also slightly higher on the day at 2.774 percent,
from Tuesday's 2.772 percent.
      December 12 Wednesday 10:36AM New York / 1536 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.38         2.4277    0.000
 Six-month bills               2.49         2.5568    0.000
 Two-year note                 99-245/256   2.7723    0.000
 Three-year note               99-146/256   2.7755    0.003
 Five-year note                100-132/256  2.763     0.017
 Seven-year note               100-84/256   2.8227    0.018
 10-year note                  101-236/256  2.9005    0.020
 30-year bond                  104-144/256  3.1387    0.011
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        13.50         1.50    
 U.S. 3-year dollar swap        11.00         2.00    
 U.S. 5-year dollar swap        10.25         1.00    
 U.S. 10-year dollar swap        4.00         0.50    
 U.S. 30-year dollar swap      -13.50         0.75    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Bernadette Baum)
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