TREASURIES-U.S. yields edge up as trade tensions ease

* Yields rise as trade tensions with China ease

* U.S. 2-year yield climb to highest since August 2007

(Updates analyst quotes, trade comment, yields, table) NEW YORK, May 14 (Reuters) - Treasury yields edged up on Monday, extending weekend gains as trade tensions eased a day after President Donald Trump pledged to help Chinese telecommunications company ZTE Corp, which has been penalized for violating U.S. sanctions with Iran. U.S. Commerce Secretary Wilbur Ross on Monday confirmed that the office was exploring "alternative remedies" to punish ZTE following the president's tweet on Sunday, which said too many jobs in China had been lost. The telecommunications company had shut down its main operations after the Commerce Department banned U.S. companies from selling components to ZTE for seven years after it illegally shipped goods made with U.S. parts to Iran and North Korea. Monday's moves were modest, with the 2-year note yield gaining less than a basis point. Nevertheless, its peak at 2.552 percent in morning trade was the highest it has been since August 2008. The benchmark 10-year government yield remained range-bound, last at 2.993 percent, just below the 3 percent level it broke through more than two weeks ago for the first time since January 2014. "Were just bopping around in a range on either side of 3 percent. If there was anything (driving yields up), it was maybe the comments from Trump over the weekend concerning trade with China that may have taken a bit of the concern out of the market," said Lou Brien, market strategist at DRW Trading in Chicago. The 2-year yield, which is more sensitive to traders' views on Federal Reserve policy, has risen 6.4 basis points this year, driving the yield curve flatter. Traders expect the U.S. central bank will raise key overnight borrowing costs at least two more times in 2018, with the next hike likely at its June 12-13 policy meeting. A "June (rate hike) is pretty much baked in," said John Canavan, market strategist at Stone & McCarthy Research Associates. "We are still expecting to see the Fed tighten further into 2019." Traders' view of more rate hikes, together with softer-than-expected data on jobs and inflation in April, has caused investors to increase their curve flattening positions, where they favor longer-dated Treasuries over shorter-dated issues, analysts said. The spread between 5-year and 30-year Treasury yields was 27.2 basis points, roughly 1 basis point wider from late Friday. The gap had narrowed slightly below 26 basis points earlier Monday, which was the slimmest since July 2007, Tradeweb data showed.

May 14 Monday 3:20PM New York / 1920 GMT Price

US T BONDS JUN8 142-25/32 -0-11/32 10YR TNotes JUN8 119-60/256 -0-44/25


Price Current Net Yield % Change


Three-month bills 1.865 1.8994 -0.006 Six-month bills 2.0125 2.0608 0.010 Two-year note 99-172/256 2.5474 0.008 Three-year note 99-200/256 2.7014 0.008 Five-year note 99-136/256 2.8519 0.014 Seven-year note 99-120/256 2.9599 0.020 10-year note 98-252/256 2.9933 0.022 30-year bond 99-252/256 3.1258 0.015


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 20.75 -1.25


U.S. 3-year dollar swap 15.50 -1.00


U.S. 5-year dollar swap 8.25 -0.50


U.S. 10-year dollar swap 2.50 -0.25


U.S. 30-year dollar swap -9.25 0.25


(Reporting by Richard Leong and Kate Duguid; editing by Nick Zieminski and Jonathan Oatis)