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TREASURIES-U.S. yields rise on U.S.-China trade talks, Brexit optimism

Gertrude Chavez-Dreyfuss

NEW YORK, Oct 21 (Reuters) - U.S. Treasury yields rose on Monday, in line with gains in stocks, lifted by optimism about a potential trade deal between the United States and China as well as a resolution of Britain's protracted negotiations to leave the European Union. U.S. 30-year yields rose to five-week highs, climbing for eight straight sessions. U.S. 10-year and two-year yields, on the other hand, advanced in six of the last eight days. Since early September, both 10-year and 30-year yields have risen about 30 basis points. "Things are a little better. There's progress on U.S.-China trade talks," said Stan Shipley, fixed income strategist, at Evercore ISI in New York. "Also we're coming into some sort of resolution on Brexit and then the economic data in the U.S. is fine. It's not great, but it's not terrible either," he added. 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economic adviser Larry Kudlow further fanned those hopes on Monday, saying tariffs scheduled for December could be withdrawn if negotiations continue to go well. The talks, which are expected to continue with calls this week, were "looking pretty good," Kudlow said in an interview on Fox Business Network. Across the Atlantic, a no-deal Brexit deal is looking less likely. Prime Minister Boris Johnson's Brexit deal would pass or the Oct. 31 deadline would be pushed back. Johnson could now pass the deal by either winning a "meaningful vote" on Monday - if the lower house speaker allows a vote to go ahead - or by securing a majority when the Withdrawal Agreement Bill is introduced on Tuesday. In morning trading, U.S. 10-year note yields rose to 1.772% from 1.75% late on Friday. Yields on 30-year bonds were up at 2.271%, from 2.248% on Wednesday, after earlier hitting a five-week peak of 2.295%. On the short-end of the curve, U.S. two-year yields climbed to 1.588%, from Friday's 1.576%. Evercore's Shipley said U.S. recession fears have eased, but 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 10:30AM New York / 1430 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.6475 1.6816 0.011Six-month bills 1.5975 1.637 0.013Two-year note 99-213/256 1.5881 0.012Three-year note 99-110/256 1.5716 0.017Five-year note 99-156/256 1.5824 0.023Seven-year note 99-172/256 1.6752 0.02510-year note 98-164/256 1.7764 0.02630-year bond 99-120/256 2.2746 0.027

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 3.25 -0.50

spread

U.S. 3-year dollar swap 0.75 -0.25

spread

U.S. 5-year dollar swap -0.75 0.00

spread

U.S. 10-year dollar swap -6.50 0.25

spread

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

spread

(Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski)