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TREASURIES-U.S. yields advance, in line with German bonds, as risk appetite rises

Gertrude Chavez-Dreyfuss

rises@

* Investors brace for ECB decision

* German finmin says govt can counter crisis through stimulus

* Germany's Merkel says govt sticking to balanced budget policy

* U.S. 3-year note was lackluster-analysts

(Adds new comment, Treasury's 3-year note auction, updates prices) NEW YORK, Sept 10 (Reuters) - U.S. Treasury yields climbed to four-week peaks on Tuesday, tracking German bonds, as risk appetite continued to improve with diminishing U.S.-China trade tensions and expectations of fiscal stimulus measures from Germany, Europe's largest economy. "Segments of market sentiment have turned because the 'buy anything because something may go wrong' idea is past for now," said Jim Vogel, interest rates strategist, at FTN Financial in Memphis, Tennessee. Concerns over a prolonged U.S.-China trade dispute have ebbed a little bit, as Washington and Beijing agreed to return to the negotiating table sometime next month. U.S. yields rose for a second straight session, with investors also awaiting a key monetary policy meeting at the European Central Bank on Thursday. Investors expect the ECB to cut interest rates, but may introduce some form of compensation for banks to offset the unwelcome side effects of negative interest rates. "As we wait on news on Thursday morning, it's not surprising that people have the jitters of what they're going to hear from the ECB, which has been the focus of attention since the beginning of August," FTN's Vogel said. Germany's 30-year government bond yield briefly turned positive on Tuesday, ahead of the ECB meeting and bolstered by possible stimulus measures from its government. German Finance Minister Olaf Scholz said on Tuesday the government can counter a possible economic crisis by injecting billions of euros into the economy. German Chancellor Angela Merkel, however, tempered expectations for fiscal stimulus, saying her government is sticking to its balanced budget policy. In afternoon trading, U.S. benchmark 10-year note yields rose to 1.698% from 1.622% late on Monday. Early in the session, 10-year yields hit a four-week high of 1.702%. "There's room for a little bit of bounce," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. "There's support around 1.71% in the 10-year." But this is all temporary, LeBas said. "Twelve months from now, I suspect rates will have revisited the all-time lows." Yields on 30-year bonds advanced to 2.178% from 2.098% on Monday, rallying from record lows of 1.905% touched in late August. U.S. 30-year yields also hit a four-week peak of 2.182% earlier in the global session. At the short end of the curve, U.S. two-year yields rose to 1.655% from Monday's 1.575%, hitting a three-week high as well of 1.609%. The Treasury's three-year note auction was lackluster, analysts said, with the yield higher than the expected level at the bid deadline. There were $92.1 bln in bids for a 2.42 cover, lower than average. Indirect bidders, which include foreign central banks, took 46.2%, slightly lower versus August's 46.7% and the 46.9% average.

September 10 Tuesday 2:53 PM New York / 1853 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.92 1.9616 0.003Six-month bills 1.8425 1.8908 0.021Two-year note 99-178/256 1.6578 0.083Three-year note 99-180/256 1.6041 0.088Five-year note 98-134/256 1.5599 0.083Seven-year note 98-68/256 1.6393 0.08110-year note 99-84/256 1.6988 0.07730-year bond 101-140/256 2.1793 0.081

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap -1.50 -1.00

spread

U.S. 3-year dollar swap -5.50 -0.75

spread

U.S. 5-year dollar swap -6.75 -0.50

spread

U.S. 10-year dollar swap -11.75 -0.75

spread

U.S. 30-year dollar swap -42.00 -0.75

spread

(Reporting by Gertrude Chavez-Dreyfuss Editing by Chizu Nomiyama and Richard Chang)