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

Gertrude Chavez-Dreyfuss

* China says discussing with U.S. next round of trade talks

* U.S. 30-year yields rise from record lows hit on Wednesday

* U.S. GDP 2nd estimate for Q2, in line with expectations

(Recasts, adds comment, byline, table, updates prices) NEW YORK, Aug 29 (Reuters) - U.S. Treasury yields rose on Thursday after two days of declines, as China and the United States said they were discussing further trade talks scheduled for September, encouraging hopes of progress in their long drawn-out conflict. U.S. 30-year yields recovered from record lows hit during the previous session. Yields on other maturities such as benchmark 10-year notes advanced as well, as a relentless rally in Treasuries took a breather, for now. The U.S. 2-year and 10-year yield curve was still inverted on Thursday, with short-dated yields above long-dated ones, but the spread has narrowed a bit -1.8 basis points. An inverted yield curve is widely considered a signal that the economy is headed for recession. China though sounded hopeful on the trade negotiations on Thursday. "The most important thing at the moment is to create necessary conditions for both sides to continue negotiations," China's commerce ministry spokesman Gao Feng said during a weekly briefing, adding China was lodging "solemn representation" with the United States. Stan Shipley, fixed-income strategist, at Evercore ISI in New York said the China news was a positive sign for U.S. Treasury yields. "The fact that China is not going to retaliate, that's good news." In morning trading, U.S. benchmark 10-year Treasury note yields rose to 1.509% from 1.468% late on Wednesday. Since the beginning of the year, 10-year yields have fallen by 118 basis points. Yields on 30-year bonds advanced to 1.988% from 1.939% on Wednesday, rallying from record lows of 1.905% touched the day before. At the short end of the curve, U.S. two-year yields rose to 1.526% from Wednesday's 1.504%. U.S. yields held up well after data showed a second reading of gross domestic product increased at a 2.0% annualized rate. That was revised down from the 2.1% pace estimated last month. The downward revision was in line with economists' expectations.

More importantly, growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged at a 4.7% rate in the second quarter. That was the fastest since the fourth quarter of 2014 and was a slight upward revision from the 4.3% pace estimated last month. Paul Ashworth, chief U.S. economist, said the data suggested that "any further slowdown in the third quarter will be modest."

August 29 Thursday 10:24AM New York/1424 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.945 1.9872 -0.005Six-month bills 1.84 1.883 0.003Two-year note 99-245/256 1.522 0.018Three-year note 100-40/256 1.4458 0.024Five-year note 99-66/256 1.4045 0.035Seven-year note 102-176/256 1.465 0.04210-year note 101-4/256 1.5147 0.04730-year bond 105-184/256 1.9955 0.056

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap -0.75 0.50

spread

U.S. 3-year dollar swap -4.50 0.50

spread

U.S. 5-year dollar swap -6.25 1.25

spread

U.S. 10-year dollar swap -10.25 0.75

spread

U.S. 30-year dollar swap -41.00 -0.25

spread

(Reporting by Gertrude Chavez-Dreyfuss Editing by Chizu Nomiyama and Bernadette Baum)