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TREASURIES-U.S.-China's trade truce boosts U.S. bond yields

Richard Leong

* U.S. factory growth slows to weakest in over 2-1/2 years -ISM

* U.S.-China talks reset eases pressure for bold Fed rate cut

* Treasuries post strongest first half in three years

(Updates market action, adds quote) NEW YORK, July 1 (Reuters) - U.S. Treasury yields rose on Monday as China and the United States' agreement to restart trade talks caused investors to pare their safe-haven holdings of bonds, although the selling was limited by worries about global economic growth. U.S. government debt produced a 5.18% total return in the first six months of 2019, marking its strongest first half in three years, according to an index compiled by Barclays and Bloomberg. Investors had piled into U.S. government debt and other perceived low-risk assets on fears about a further escalation in trade tensions between the world's biggest economies after a G20 summit in Osaka, Japan this weekend. But Washington and Beijing agreed to renegotiate after U.S. President Donald Trump offered concessions, including no new tariffs and an easing of restrictions on tech company Huawei, while China approved making unspecified new purchases of U.S. farm products. "The main driver today was the easing of trade tension, but there's a surprisingly lack of details," said Mary Ann Hurley, vice president of fixed income at D.A. Davidson in Seattle. "This may go on for a long time. In my opinion, I don't think that's positive for business." Still Wall Street rallied on the agreement between Trump and Chinese President Xi Jinping, with the S&P 500 hitting a record high. In late U.S. trading, benchmark 10-year U.S. Treasury note yields were up 3.10 basis points at 2.031%. They fell 14 basis points in June and touched 1.974%, which was their lowest since November 2016. With U.S.-China trade talks seemingly back on track, there were lowered expectations the Federal Reserve would embark on an aggressive half-percentage-point rate cut at its next policy meeting on July 30-31, though traders still anticipate a more modest quarter-point decrease, analysts said. The view on a possible Fed rate cut was supported by disappointing factory data in Asia and Europe. U.S. manufacturing growth decelerated in June to its weakest since October 2016, but the fall was less severe than analysts had forecast. "The market wants a rate cut," said Gregory Faranello, head of U.S. rates at AmeriVet Securities in New York. "Bottom line, this is what we are priced for and the Fed certainly has a role in current market expectations." Interest rate futures implied traders fully expect a rate cut at the Fed's next meeting, but they rolled back their bets on a 50 basis-point cut to 20% from 32% late on Friday, according to CME Group's FedWatch program. Monday, July 1, at 1530 EDT (1930 GMT): Price

US T BONDS SEP9 155-2/32 -0-17/3210YR TNotes SEP9 127-180/256 -0-68/256Price Current NetYield % Change


Three-month bills 2.0775 2.1227 0.023Six-month bills 2.045 2.1002 0.005Two-year note 99-174/256 1.7892 0.048Three-year note 100-6/256 1.7417 0.044Five-year note 99-202/256 1.7943 0.037Seven-year note 99-212/256 1.9014 0.03310-year note 103-16/256 2.0309 0.03130-year bond 106-168/256 2.555 0.029


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 5.25 0.00


U.S. 3-year dollar swap 3.50 0.25


U.S. 5-year dollar swap -0.50 0.25


U.S. 10-year dollar swap -4.50 0.25


U.S. 30-year dollar swap -31.75 0.25


(Reporting by Richard Leong Editing by Diane Craft and James Dalgleish)