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TREASURIES-Yields rise before U.S.-China trade talks

Karen Brettell

* U.S.-China trade talks on Saturday in focus

* Quarter-end rebalancing seen helping bond demand

* U.S. consumer spending increased moderately in May

NEW YORK, June 28 (Reuters) - U.S. Treasury yields edged higher on Friday as investors waited on talks between U.S. and China on Saturday for signs that leaders will de-escalate a trade war that has been blamed for harming global economic growth. U.S. President Donald Trump on Friday said he hoped for productive talks with Chinese President Xi Jinping, but added that he had not made any promises about a reprieve from escalating tariffs. Bond trading was muted as investors were seen as reluctant to take large positions before the talks, given the uncertainty of the outcome. I dont think too many people are all that enthusiastic about leaving for the weekend with a sizable position either way, because of the unknowns surrounding the G20, said Tom Simons, a money market economist at Jefferies in New York. Trump and Xi will meet for the first time in seven months to discuss deteriorating ties between the world's two largest economies at the G20 summit in Japan. The ongoing U.S.-China trade war is being blamed for slowing international growth and adding more pressure on central banks to adopt looser policies. The U.S. Federal Reserve is seen as certain to cut interest rates when it meets in July. Yields have hovered around the two percent level after dropping to an almost three-year low of 1.974 percent last week, after the U.S. central bank signaled interest rate cuts as soon as July to battle growing global and domestic economic risks.

Demand for bonds from investors rebalancing accounts for quarter-end is expected to provide some support for the market on Friday. Data on Friday showed that U.S. consumer spending increased moderately in May and prices rose slightly, pointing to slowing economic growth and benign inflation pressures.

(Editing by Chizu Nomiyama)

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