TREASURIES-Yields rise on hopes of U.S., China trade deal

Karen Brettell

* U.S., China negotiating on tariffs

* Treasury to sell $38 bln three-year notes

* ISM services data in focus

NEW YORK, Nov 5 (Reuters) - U.S. Treasury yields rose on Tuesday on optimism that the United States and China will reach a deal to de-escalate their trade war, and before the Treasury Department will make the first sale of $84 billion in new coupon-bearing supply this week. China is pushing U.S. President Donald Trump to remove more tariffs imposed in September as part of a "phase one" U.S.-China trade deal, people familiar with the negotiations said on Monday. The deal, which may be signed this month by Trump and Chinese President Xi Jinping at a yet-to-be determined location, is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, including cellphones, laptop computers and toys.

Bonds are trading on trade for the most part; there were some positive headlines in the overnight session, said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

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

yield 1.839%, up from 1.788% late Monday. Investors are also preparing for new supply, with the Treasury due to sell $38 billion in three-year notes on Tuesday, followed by $27 billion of 10-year notes on Wednesday and $19 billion of 30-year bonds on Thursday. 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 at 10:00 EST (1500 GMT) on Tuesday. The ISM said on Friday that the manufacturing sector contracted for the third consecutive month in October.