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TREASURIES-U.S. yields rise for 3rd day, tracking Europe, as ECB meeting looms

Gertrude Chavez-Dreyfuss

looms@

* ECB in focus; investors brace for less-aggressive policy

* China announces tariff exemptions on U.S. goods

* U.S. producer prices rise; core PPI rebounds

* U.S. to auction 10-year notes later in session

(Recasts, adds analyst comment, details, Treasuries table) NEW YORK, Sept 11 (Reuters) - U.S. Treasury yields rose on Wednesday for a third straight day, moving in lock step with the euro zone bond market, amid uncertainty about Thursday's European Central Bank meeting, which could prove less-aggressive in easing monetary policy. U.S. benchmark 10-year and 2-year notes climbed to five-week peaks, while those on 30-year bonds advanced to four-week highs. In the euro zone, most 10-year bond yields gained, holding close to recent highs. Analysts said a report late on Tuesday that the ECB may delay quantitative easing and tie it to upcoming economic data may have triggered the latest sell-off in European debt.

"There was an expectation that the ECB would be aggressive with easing," said Tom Simons, economist at Jefferies in New York. "If they're not, that kind of changes the calculus a little bit. There's nervousness on that front, so there's a lot of paring back of positions." A Reuters poll showed nearly 70 economists were expecting the ECB to cut its deposit rate at the meeting, predicting a 10 basis point reduction to -0.5%. But a majority of economists also believed the ECB could introduce some form of compensation for banks to offset the adverse impact of negative rates.

U.S. yields also found support from a further easing in U.S.-China trade tensions after President Donald Trump fired his national security adviser, John Bolton, perceived as a China policy hawk, amid disagreements on foreign policy. Concerns about the trade dispute further waned after China on Tuesday announced its first batch of tariff exemptions for 16 types of U.S. products, days ahead of a planned meeting between trade negotiators. In mid-morning trading, U.S. 10-year note yields rose to 1.731% from 1.702% late on Tuesday. Early in the session, 10-year yields hit a five-week high of 1.752%. Yields on 30-year bonds also advanced, to 2.213% from 2.181% on Tuesday, moving further away from record lows of 1.905% touched in late August. U.S. 30-year yields also hit a four-week peak of 2.233% earlier in the global session. At the short end of the curve, U.S. two-year yields rose to 1.668% from Tuesday's 1.664%, hitting a five-week high of 1.686%. U.S. yields extended their rise after data showed core U.S. producer prices rebounded in August after falling the previous month, suggesting some pick-up in inflation. Later on Wednesday, the Treasury will auction $24 billion of re-opened U.S. 10-year notes.

September 11 Wednesday 10:16AM New York / 1416 GMT Price

Price Current NetYield % Change

(bps)

Three-month bills 1.92 1.9615 0.000Six-month bills 1.84 1.8882 -0.005Two-year note 99-175/256 1.6641 0.000Three-year note 99-178/256 1.6045 0.013Five-year note 98-106/256 1.5832 0.018Seven-year note 98-20/256 1.6683 0.02510-year note 99-12/256 1.7299 0.02830-year bond 100-212/256 2.212 0.031

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap -1.25 0.75

spread

U.S. 3-year dollar swap -4.25 1.50

spread

U.S. 5-year dollar swap -6.50 0.25

spread

U.S. 10-year dollar swap -12.00 -0.25

spread

U.S. 30-year dollar swap -42.25 -0.25

spread

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