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TREASURIES-U.S. yields rise on renewed optimism about China trade talks

Gertrude Chavez-Dreyfuss

* U.S. says some products to be removed from China tariff list China a says spoke with U.S. trade officials

* U.S. CPI rises in July

* U.S. 30-year yields rise 3-year low

(Recasts, adds analyst comments, U.S. trade official remarks, table, byline) NEW YORK, Aug 13 (Reuters) - U.S. Treasury yields rose on Tuesday, as risk appetite improved after U.S. Trade Representative Robert Lighthizer said some products will be removed from the China's tariff list, easing trade tensions between the two world's largest economies for now. U.S. 10-year note yields hit session highs, while those on 30-year bonds rallied from more than three-year lows. Traders earlier were bracing for 30-year yields sinking to a record low below 2.08%. Lighthizer said the products to be removed from China's tariff list will be based on health, safety, national security and other factors. These items will not face additional tariffs of 10%.. The trade representative's comments came after Chinese Vice Premier Liu conducted a phone call with U.S. trade officials, according to a statement from the China's Ministry of Commerce.

"We got this trade headlines and we saw equities jump 400 points and that's led to some Treasury selling. So it's overall trade optimism for global markets," said Justin Lederer, Treasury trader, at Cantor Fitzgerald in New York. That said market sentiment remained cautious overall. Tuesday's data showing a pick-up in U.S. inflation in July earlier pushed yields slightly higher. Analysts said the higher inflation was a positive sign for the U.S. economy, but was likely not enough to deter the Federal Reserve from cutting interest rates at the next policy meeting in September. The Labor Department said on Tuesday the U.S. consumer price index climbed 0.3% last month, lifted by gains in the cost of energy products and a range of other goods. Excluding the volatile food and energy components, the CPI gained 0.3% after rising by the same margin in June. "I really think we need to see a string of stronger inflation in data before we see a mutual change in sentiment that is very focused on backward-looking inflation and recent data showing that inflation is nowhere to be found in Europe and Japan and it's sluggish in the U.S.," said Bill Merz, director of fixed income at U.S. Bank Wealth Management in Minneapolis. In morning trading, U.S. benchmark 10-year Treasury note yields rose to 1.686% from 1.64% late on Monday. Yields on 30-year bonds advanced to 2.143%, from 2.13% on Monday. Thirty-year yields earlier hit 2.097%, their lowest level since July 2016. At the short end of the curve, U.S. two-year yields rose to 1.652% from Monday's 1.58%.

August 13 Tuesday 10:14AM New York / 1414 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.9675 2.0104 0.013Six-month bills 1.9025 1.953 0.018Two-year note 100-51/256 1.6463 0.066Three-year note 99-194/256 1.583 0.075Five-year note 100-230/256 1.5611 0.076Seven-year note 101-160/256 1.6271 0.07010-year note 99-100/256 1.6915 0.05130-year bond 102-12/256 2.157 0.027

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap -1.50 -0.25

spread

U.S. 3-year dollar swap -3.75 0.00

spread

U.S. 5-year dollar swap -6.75 0.00

spread

U.S. 10-year dollar swap -10.75 0.50

spread

U.S. 30-year dollar swap -39.00 0.75

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve Orlofsky)