October 21, 2019 / 2:47 PM / 4 months ago

TREASURIES-U.S. yields rise on U.S.-China trade talks, Brexit optimism

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 21 (Reuters) - U.S. Treasury yields rose on
Monday, in line with gains in stocks, lifted by optimism about a
potential trade deal between the United States and China as well
as a resolution of Britain's protracted negotiations to leave
the European Union.
    U.S. 30-year yields rose to five-week highs, climbing for
eight straight sessions. U.S. 10-year and two-year yields, on
the other hand, advanced in six of the last eight days.
    Since early September, both 10-year and 30-year yields have
risen about 30 basis points.
    "Things are a little better. There's progress on U.S.-China
trade talks," said Stan Shipley, fixed income strategist, at
Evercore ISI in New York.
    "Also we're coming into some sort of resolution on Brexit
and then the economic data in the U.S. is fine. It's not great,
but it's not terrible either," he added. 
    Investors overall pinned their hopes on an imminent
U.S.-China trade deal. 
    White House economic adviser Larry Kudlow further fanned
those hopes on Monday, saying tariffs scheduled for December
could be withdrawn if negotiations continue to go well.
    The talks, which are expected to continue with calls this
week, were "looking pretty good," Kudlow said in an interview on
Fox Business Network.
    Across the Atlantic, a no-deal Brexit deal is looking less
likely. Prime Minister Boris Johnson's Brexit deal would pass or
the Oct. 31 deadline would be pushed back.
    Johnson could now pass the deal by either winning a
"meaningful vote" on Monday - if the lower house speaker allows
a vote to go ahead - or by securing a majority when the
Withdrawal Agreement Bill is introduced on Tuesday.
    In morning trading, U.S. 10-year note yields
rose to 1.772% from 1.75% late on Friday.
    Yields on 30-year bonds were up at 2.271%, from
2.248% on Wednesday, after earlier hitting a five-week peak of
    On the short-end of the curve, U.S. two-year yields climbed
to 1.588%, from Friday's 1.576%.
    Evercore's Shipley said U.S. recession fears have eased, but
it's still a risk, with economic growth slowing.
    "You go back two months ago, people were worried about a
recession," Shipley said. "The odds of a recession then were
between 35%-45%. Now people would put those odds at 20-25%."
    Treasury supply is also a big factor this week, with
auctions of $113 billion in coupons with two-, five-, and
seven-year maturities, along with about $200 billion in bills
and a two-year floating rate note.
      October 21 Monday 10:30AM New York / 1430 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.6475       1.6816    0.011
 Six-month bills               1.5975       1.637     0.013
 Two-year note                 99-213/256   1.5881    0.012
 Three-year note               99-110/256   1.5716    0.017
 Five-year note                99-156/256   1.5824    0.023
 Seven-year note               99-172/256   1.6752    0.025
 10-year note                  98-164/256   1.7764    0.026
 30-year bond                  99-120/256   2.2746    0.027
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         3.25        -0.50    
 U.S. 3-year dollar swap         0.75        -0.25    
 U.S. 5-year dollar swap        -0.75         0.00    
 U.S. 10-year dollar swap       -6.50         0.25    
 U.S. 30-year dollar swap      -36.75         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)
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