TREASURIES-Yields rise before supply, on trade optimism

Karen Brettell

* Treasury to sell $84 bln in notes, bonds this week

* Trade deal optimism reduces safe haven demand for bonds

* ISM non-manufacturing data on Tuesday in focus

NEW YORK, Nov 4 (Reuters) - U.S. Treasury yields rose on Monday as the market prepared for the Treasury Department to issue long-dated debt and as optimism that the United States and China will reach a deal to de-escalate their trade war boosted risk sentiment. The Treasury will sell $84 billion in notes and bonds this week as part of its quarterly refinancing. The sales will include $38 billion in three-year notes on Tuesday, $27 billion in 10-year notes on Wednesday and $19 billion in 30-year bonds on Thursday. The market is refocused on the refunding thats going to take place this week, said Michael Lorizio, senior fixed income trader at Manulife Asset Management in Boston. At the same time, optimism on a trade deal between the United States and China reduced demand for safe haven U.S. bonds. The United States and China on Friday said they made progress in talks aimed at defusing a nearly 16-month-long trade war that has harmed the global economy, and U.S. officials said a deal could be signed this month.

Benchmark 10-year notes fell 15/32 in price to

yield 1.779%, up from 1.728% late Friday. Risk appetite has also improved since U.S. jobs data on Friday showed that job growth slowed less than expected in October while wages rose. The next major U.S. economic focus will be the Institute of Supply Managements (ISM) services report on Tuesday. The ISM said on Friday that the manufacturing sector contracted for the third consecutive month in October.

However, the service sector is the larger portion of the economy and with the weakness that weve seen in ISM manufacturing if we see any sort of cracks in this measure, then that could indicate that perhaps the economy is on a weaker footing than we anticipated, Lorizio said. The Federal Reserve last Wednesday cut rates for the third time this year and indicated that further reductions may not be forthcoming. Investors remain concerned, however, that a slowing U.S. economy may force the Feds hand.

(Editing by Susan Fenton)