November 5, 2019 / 7:22 PM / 10 days ago

TREASURIES-Yields rise on hopes of U.S., China trade deal

 (Adds ISM data, Fed expectations, auction result, updates
prices)
    * U.S., China negotiating on tariffs
    * ISM services data beats expectations
    * Treasury sells $38 bln three-year notes

    By Karen Brettell
    NEW YORK, Nov 5 (Reuters) - Benchmark U.S. Treasury yields
rose to six week highs on Tuesday on optimism that the United
States and China will reach a deal to de-escalate their trade
war, and after data showed strength in the U.S. services sector.
    Yield rose overnight on reports that the U.S. was
considering dropping tariffs on Chinese goods. 
    The trade deal, which may be signed this month by Trump and
Chinese President Xi Jinping at a yet-to-be determined location,
is widely expected to include a U.S. pledge to scrap tariffs
scheduled for Dec. 15 on about $156 billion worth of Chinese
imports, including cellphones, laptop computers and toys.
            
    Bonds moved "on trade for the most part; there were some
positive headlines in the overnight session,” said Gennadiy
Goldberg, an interest rate strategist at TD Securities in New
York.
    Treasuries extended price losses after the Institute of
Supply Management’s (ISM) services sector report beat
expectations in October, adding to optimism over U.S. economic
growth.             
    The U.S. services sector is much larger than the beleaguered
manufacturing sector, which the ISM said on Friday contracted
for the third consecutive month in October.             
    Risk appetite has improved since U.S. jobs data on Friday
showed that job growth slowed less than expected in October
while wages rose.             
    Benchmark 10-year notes             were down 20/32 in price
to yield 1.858%, after earlier rising as high as 1.873%, the
highest since September 16.  
    The yield curve between two-year and 10-year notes
               also steepened to 23 basis points, the steepest
since July 25.
    Stronger data has bolstered the view that the Federal
Reserve is unlikely to continue cutting interest rates in the
near term, after three rate decreases this year.
    Interest rate futures traders are pricing in only a 5%
chance of the Fed cutting rates in December, down from 44% at
the beginning of October, according to the CME Group's FedWatch
tool.
    The Treasury sold $38 billion in three-year notes on Tuesday
to solid demand, the first sale of $84 billion in new
coupon-bearing supply this week.             
    The government will also sell $27 billion in 10-year notes
on Wednesday and $19 billion of 30-year bonds on Thursday.
            


 (Editing by Chizu Nomiyama)
  
 
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