December 4, 2019 / 8:10 PM / 7 days ago

TREASURIES-U.S. yields rise on trade outlook, setting aside economic data

    * Trump says U.S.-China trade talks going 'very well'
    * U.S. ISM services index falls in November
    * U.S. ADP private sector jobs number misses forecast 

 (Recasts to focus on mixed economic data, adds investor
comment, updates prices)
    By Ross Kerber
    BOSTON, Dec 4 (Reuters) - U.S. Treasury yields rose on
Wednesday on an improved outlook for a U.S.-China trade deal,
and as investors brushed off mixed U.S. economic data.
    The benchmark 10-year yield was up 7.4 basis
points at 1.7827% in afternoon trading as the global appetite
for risk increased.
    U.S. President Donald Trump said on Wednesday at a meeting
of NATO leaders near London that talks with China were going
"very well." In contrast, his comments on Tuesday raised the
prospect of extended trade tensions between the world's two
biggest economies, and pushed the 10-year Treasury yield the
lowest since May 2018.
    Wednesday's turnaround showed a potential trade deal was
more important to investors than a pair of relatively weak
November U.S. economic reports. U.S. services sector activity
slowed, and other data showed private employers hired the fewest
workers in six months.
    "Trade is everything right now," said Mary Ann Hurley, vice
president for fixed-income trading at D. A. Davidson. She also
noted how Trump's mixed messages from day to day created
volatility.
    "You get stuff out of Trump, it's 180 degrees different day
by day. Either it (trade talks) are going really well, or he's
not in a hurry to make a deal," she said.
    Tony Bedikian, head of global markets for Citizens Bank,
said concrete trade steps are likely needed to move 10-year
yields out of the range of 1.5% to 2% where they have traded
since October.
    "Right now we are mired in this range, and we need some more
definitive results coming out of the trade talks" before 10-year
yields would again exceed 2%, he said. 
    Traders are focused on the U.S. Labor Department's more
comprehensive nonfarm payrolls report due out on Friday, which
includes both public- and private-sector employment.  
    The two-year yield, typically seen as indicator of interest
rate expectations, rose 5.2 basis points to 1.5842%
in afternoon  trading. The spread between the two- and 10-year
yields widened 2.05 basis points. 
    The movement suggested investors overall expect the U.S.
Federal Reserve to hold interest rates unchanged "for the
foreseeable future," Bedikian said. 
    
    December 4 Wednesday 2:27PM New York / 1927 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.5275       1.559     -0.020
 Six-month bills               1.5325       1.5702    -0.011
 Two-year note                 99-214/256   1.5842    0.052
 Three-year note               100-24/256   1.5922    0.062
 Five-year note                99-126/256   1.6064    0.072
 Seven-year note               99-104/256   1.7155    0.071
 10-year note                  99-184/256   1.7809    0.072
 30-year bond                  103-60/256   2.2264    0.066
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         1.50         0.25    
 spread                                               
 U.S. 3-year dollar swap        -2.75         0.50    
 spread                                               
 U.S. 5-year dollar swap        -3.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -7.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -34.00         0.25    
 spread                                               
 

 (Reporting by Ross Kerber; Editing by Andrea Ricci and Richard
Chang)
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