Wires

TREASURIES-U.S. 10-year, 30-year yields touch 5-week high on trade, Brexit optimism

Gertrude Chavez-Dreyfuss

optimism@

* Brexit once again in perilous state after deal vote blocked

* Trump says trade deal with China is coming along great

* U.S. 30-year bond yield hits five-week high

(Adds new comment, updates prices) NEW YORK, Oct 21 (Reuters) - U.S. Treasury yields rose on Monday as investors sold safe-haven debt on optimism about a potential U.S.-China trade deal and a resolution of some of the major issues related to Britain's exit from the European Union. U.S. 10-year and 30-year yields rose to five-week highs, with 30-year yields climbing for eight straight sessions. U.S. two-year yields, on the other hand, advanced in six of the last eight trading days. Since early September, both 10-year and 30-year yields have risen about 30 basis points. "The recent sell-off has been a direct correlation with the better-than-expected news on Brexit as well as perception that U.S. and China would come to some form of trade resolution very soon," said Tom di Galoma, managing director at Seaport Global Holdings in New York. However, he noted that even with an orderly Brexit and a U.S.-China trade deal being achieved, "there are massive amounts of troubling economic issues worldwide and a number of geo-political events that could completely overwhelm the marketplace." Investors overall pinned their hopes on an imminent U.S.-China trade deal. White House economic adviser Larry Kudlow further fanned those hopes on Monday, saying in an interview on Fox Business Network that tariffs scheduled for December could be withdrawn if negotiations continue to go well. President Donald Trump on Monday said issues in phase two of the deal would be, in many ways, a lot easier to work out than those in phase one. Just when it looked like a Brexit deal is on its way with a vote on Monday, House of Commons speaker John Bercow refused to allow that vote as the same issue had been discussed on Saturday. In afternoon trading, U.S. 10-year note yields rose to 1.794% from 1.75% late on Friday. Yields on 30-year bonds were up at 2.286%, from 2.248% on Wednesday, after earlier hitting a five-week peak just shy of 2.3%. On the short-end of the curve, U.S. two-year yields climbed to 1.616%, from Friday's 1.576%. Stan Shipley, fixed income strategist at Evercore ISI in New York, said U.S. recession fears have eased although it's still a risk with economic growth slowing. "You go back two months ago, people were worried about a recession," Shipley said. "The odds of a recession then were between 35%-45%. Now people would put those odds at 20-25%." Treasury supply is also a big factor this week, with auctions of $113 billion in coupons with two-, five-, and seven-year maturities, along with about $200 billion in bills and a two-year floating rate note.

October 21 Monday 3:41PM New York / 1941 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.6375 1.6713 0.000Six-month bills 1.6025 1.6421 0.018Two-year note 99-199/256 1.6169 0.041Three-year note 99-90/256 1.5986 0.044Five-year note 99-128/256 1.6056 0.047Seven-year note 99-132/256 1.6992 0.04910-year note 98-120/256 1.7958 0.04630-year bond 99-48/256 2.2877 0.040

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 2.50 -1.25

spread

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

spread

U.S. 5-year dollar swap -1.00 -0.25

spread

U.S. 10-year dollar swap -6.75 0.00

spread

U.S. 30-year dollar swap -36.75 0.00

spread

(Reporting by Gertrude Chavez-DreyfussEditing by Nick Zieminski and Cynthia Osterman)