TREASURIES-Yields up after Canada, U.S. forge last-minute trade pact

NEW YORK, Oct 1 (Reuters) - Yields on U.S. government bonds rose on Monday after the United States and Canada announced a deal on Sunday to save NAFTA as a trilateral pact with Mexico. Across maturities, yields rose from Friday's close, with most gains coming at the long end of the curve, as traders sold the safe-haven debt for riskier assets. Equities benefited, with the S&P 500 index up 17.36 points from Friday's close, the Dow Jones Industrial Average up 178.32 points. Sunday's agreement will preserve the three-country pact, rescuing a deal that underpins a $1.2 trillion open trade zone that had been about to collapse after nearly a quarter century. The North American Free Trade Agreement (NAFTA) will become the United States-Mexico-Canada Agreement (USMCA). "There is a pretty significant risk-on tone following the new NAFTA agreement," said Mike Lorizio, senior fixed income trader at Manulife Asset Management in New York. Yields, however, had fallen modestly by 9:42 am ET (13:42 GMT), reversing some of their early morning gains. "This is a positive, and you've seen risk assets respond, and you've seen Treasuries respond a bit, but U.S. fundamentals are so strong right now that the effects of these negotiations had already been priced in," said Lorizio. Analysts have suggested that the market has been more focused on trade tensions with China, which has seen Washington and Beijing volley billions of dollars in new tariffs. On Sept. 24 the United States imposed tariffs covering $200 billion worth of Chinese goods. China retaliated with tariffs on $60 billion worth of U.S. products. A deluge of new corporate bond issues is also expected to pressure Treasury prices this week. At the end of last week, "we saw underperformance at the back end of the curve as we've been hearing talk of $40 billion or more in new corporate issuance. When you see corporate issuance skewed to the back end of the curve, that can put a decent amount of pressure on as investors find homes for that supply," said Lorizio. The 10-year Treasury yield was last at 3.071 percent, up from its close Friday at 3.056 percent. The 30-year bond yield was last at 3.214 percent, up from Friday's close at 3.196 percent. The front end of the curve, however, was less affected. The two-year note yield up less than a basis point at 2.823 percent. The move in longer-dated yields steepened the curve, with the spread between two- and 10-year yields up about a basis point to 24.6. The spread between the five- and 30-year yields was also up about a basis point to 26.

October 1 Monday 9:59AM New York / 1359 GMT Price

US T BONDS DEC8 140-4/32 -0-12/32 10YR TNotes DEC8 118-180/256 -0-20/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 2.1725 2.2142 0.015 Six-month bills 2.3125 2.3716 0.000 Two-year note 99-220/256 2.8229 0.004 Three-year note 99-156/256 2.8886 0.006 Five-year note 99-158/256 2.958 0.010 Seven-year note 99-208/256 3.0299 0.013 10-year note 98-84/256 3.0724 0.016 30-year bond 95-208/256 3.2192 0.023

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 16.00 -0.75

spread

U.S. 3-year dollar swap 15.50 -0.75

spread

U.S. 5-year dollar swap 11.25 -0.25

spread

U.S. 10-year dollar swap 5.25 -0.25

spread

U.S. 30-year dollar swap -8.00 -0.50

spread

(Reporting by Kate Duguid Editing by Susan Thomas)