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TREASURIES-U.S. yields rise on possible China trade deal; Trump probe shrugged off

Gertrude Chavez-Dreyfuss

shrugged off@

* Trump says China trade deal may come sooner than expected

* U.S. sales of single family homes rise

* Summary call between Trump, Ukraine president released

* Trump asked Ukraine to investigate Biden

* U.S. 5-year note auction shows lukewarm demand

(Adds new comment, U.S. 5-year auction results, updates prices) NEW YORK, Sept 25 (Reuters) - Yields on U.S. Treasury long-dated debt rallied from two-week lows on Wednesday, after falling for seven straight sessions, bolstered by strong housing data and comments by President Donald Trump about a possible trade deal with China. Investors also largely shrugged off concerns about Trump's impeachment investigation, while a lackluster U.S. five-year note auction helped extend a sell-off in Treasury prices. Analysts said market participants were more focused on trade negotiations and economic data. Trump said on Wednesday a deal to end a nearly 15-month trade war with China could happen sooner than people think. "They want to make a deal very badly... It could happen sooner than you think," Trump told reporters in New York. The remarks came a day after sharp comments on trade talks with China at the United Nations General Assembly, where Trump said he would not accept a "bad deal". "Investors are determined to trade everything President Trump says about trade," said Jim Vogel, senior rates strategist, at FTN Financial in Memphis, Tennessee. "Yesterday was the stern UN address that signaled risk avoidance. This morning was an opposing reaction, led by stocks, to his comment we might be surprised how quickly a deal comes together." Trump also announced initial details of a trade deal with Japan, which would open up Japanese markets to $7 billion worth of U.S. products. As the bond market cheered positive U.S. pronouncements on trade, investors kept a cautious eye on Trump's impeachment investigation, which has had a limited effect on Treasuries so far. On Tuesday, U.S. House of Representatives Speaker Nancy Pelosi said the Democratic-led House was moving forward with an official impeachment inquiry against Trump, saying no one was above the law. The House will examine whether Trump sought Ukraine's help to smear former Vice President Joe Biden, the front-runner for the 2020 Democratic presidential nomination, Pelosi said. A summary of a July phone call on Wednesday showed Trump had asked Ukrainian President Volodymyr Zelenskiy to investigate Biden and a company that employed his son. "The impeachment is not a big issue until you get into a recession," said Stan Shipley, fixed income strategist, at Evercore ISI in New York. "Let's say you did impeach the president, which is very unlikely, and you did convict him. Then trade wars will probably look a lot better because whoever is going to replace him is not going to be as hard-nosed on trade as he is," he added. In afternoon trading, U.S. 10-year note yields rose to 1.721% from 1.635% late on Tuesday, after earlier hitting a two-week low of 1.63%. Yields on 30-year bonds were also higher at 2.134%, from 2.095% on Tuesday. U.S. two-year yields were up at 1.645%, from Tuesday's 1.594%. Also boosting yields was an upbeat U.S. housing report, analysts said. Data showed sales of new single-family homes rebounded more than expected in August by 7.1% to a seasonally adjusted annual rate of 713,000 units. Treasury prices extended losses, pushing yields higher, following a generally soft U.S. five-year note auction. The note fetched a yield that was higher than the expected yield at the bid deadline, suggesting tepid demand. There were $94.9 billion in bids for a 2.32 cover, lower than last month's 2.48 as well as the 2.36 average.

September 25 Wednesday 12:18 PM New York / 1618 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.875 1.9153 -0.016Six-month bills 1.865 1.9141 0.000Two-year note 99-178/256 1.6555 0.062Three-year note 99-186/256 1.5946 0.063Five-year note 98-118/256 1.5757 0.065Seven-year note 98-68/256 1.6408 0.06510-year note 99-80/256 1.7008 0.06630-year bond 102-52/256 2.1497 0.055

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 0.00 2.00

spread

U.S. 3-year dollar swap -2.75 1.00

spread

U.S. 5-year dollar swap -6.25 0.75

spread

U.S. 10-year dollar swap -13.00 0.25

spread

U.S. 30-year dollar swap -43.75 0.00

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette Baum and Tom Brown)