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U.S. yields advance on China trade talks optimism

Credit: REUTERS/JOSE LUIS GONZALEZ

U.S. Treasury yields rose on Tuesday, as risk appetite improved, after the Trump administration delayed imposing a 10% import tariff on laptops, cellphones, video game consoles and a wide range of other products made in China, easing trade tensions between the two world's largest economies for now.

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 13 (Reuters) - U.S. Treasury yields rose on Tuesday, as risk appetite improved, after the Trump administration delayed imposing a 10% import tariff on laptops, cellphones, video game consoles and a wide range of other products made in China, easing trade tensions between the two world's largest economies for now.

U.S. 10-year note yields hit session highs, while those on 30-year bonds rallied from more than three-year lows. Traders earlier were bracing for 30-year yields sinking to a record low below 2.08%.

The U.S. yield curve, however, continued its flattening trend, reflecting still-elevated anxiety. The spread between U.S. 2-year and 10-year note yields, a closely watched metric for recession signals, further narrowed to 1.4 basis points, the flattest level in more than 12 years, according to Refinitiv data.

The delay in the U.S. tariffs had been scheduled to start next month. The U.S. Trade Representative's Office action was published just minutes after China's Ministry of Commerce said Vice Premier Liu had a phone conversation with U.S. trade officials.

"We got this trade headline and we saw equities jump 400 points, and that's led to some Treasury selling. So, it's overall trade optimism for global markets," said Justin Lederer, Treasury trader at Cantor Fitzgerald in New York.

That said, market sentiment remained cautious overall.

Tuesday's data showing a pickup in U.S. inflation in July earlier pushed yields slightly higher. Analysts said the higher inflation was a positive sign for the U.S. economy, but was likely not enough to deter the Federal Reserve from cutting interest rates at the next policy meeting in September.

The Labor Department said on Tuesday the U.S. consumer price index climbed 0.3% last month, lifted by gains in the cost of energy products and a range of other goods. Excluding the volatile food and energy components, the CPI gained 0.3% after rising by the same margin in June.

"I really think we need to see a string of stronger inflation data before we see a mutual change in sentiment that is very focused on backward-looking inflation and recent data showing that inflation is nowhere to be found in Europe and Japan and it's sluggish in the U.S.," said Bill Merz, director of fixed income at U.S. Bank Wealth Management in Minneapolis.

In midday trading, U.S. benchmark 10-year Treasury note yields US10YT= rose to 1.684% from 1.64% late on Monday.

Yields on 30-year bonds advanced to 2.143% US30YT=RR from 2.13% on Monday. Thirty-year yields earlier hit 2.097%, their lowest level since July 2016.

At the short end of the curve, U.S. two-year yields rose to 1.656% from Monday's 1.58% US2YT=RR.

August 13 Tuesday 11:40 AM New York / 1540 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

1.965

2.0078

0.011

Six-month bills US6MT=RR

1.91

1.9608

0.026

Two-year note US2YT=RR

100-46/256

1.6564

0.076

Three-year note US3YT=RR

99-188/256

1.591

0.083

Five-year note US5YT=RR

100-224/256

1.566

0.081

Seven-year note US7YT=RR

101-166/256

1.6236

0.067

10-year note US10YT=RR

99-116/256

1.6847

0.045

30-year bond US30YT=RR

102-84/256

2.1444

0.014

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

-1.00

0.25

U.S. 3-year dollar swap spread

-3.25

0.50

U.S. 5-year dollar swap spread

-6.50

0.25

U.S. 10-year dollar swap spread

-10.50

0.75

U.S. 30-year dollar swap spread

-39.25

0.50

(Reporting by Gertrude Chavez-Dreyfuss; editing by Steve Orlofsky and Jonathan Oatis)

((gertrude.chavez@thomsonreuters.com; 646-223-6322; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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