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TREASURIES-U.S. yields inch higher on upbeat data; trade news still main driver

Gertrude Chavez-Dreyfuss

driver@ NEW YORK, Nov 22 (Reuters) - Most U.S. Treasury yields edged higher on Friday, boosted by upbeat U.S. data showing a pick-up in manufacturing and services activity. Prior to the release of the data, U.S. yields had been tracking the decline in Europe amid weak numbers in the region. . Yields had also been pressured by persistent uncertainty on the U.S. trade negotiations with China. Friday's data showed U.S. manufacturing output accelerated in November to its fastest pace in seven months. Services activity also picked up more than expected, according to an IHS Markit survey, a sign of the continued resilience of the U.S. economy in the face of the trade war and other headwinds. "There's not a lot of conviction to these moves. The market is still trading off China headlines," said Justin Lederer, Treasury trader at Cantor Fitzgerald in New York. "We're back 25 basis points on the 10s from two weeks ago. If the market sees a done deal in trade and there are no problems in the world, the 10-year yield would be closer to 2%," he said. "There's a lot of uncertainty on the deal itself," he added. "The Hong Kong uncertainty adds another whole level to it." In morning trading, U.S. 10-year note yields were little changed at 1.774%, from Thursday's 1.772%. Yields on 30-year bonds, on the other hand, were slightly lower at 2.225%, from Thursday's 2.231%. On the short end of the curve, U.S. two-year yields rose to 1.613%, from 1.605% on Thursday. After steepening on Thursday, the yield curve flattened again on Friday amid a standstill in U.S.-China trade talks. The spread between the two-year and 10-year note yields narrowed to 15.3 basis points. On Friday, President Donald Trump said a trade deal with China is "potentially very close" and that he stands with both the people of Hong Kong and Chinese President Xi Jinping amid massive protests in Hong Kong.

November 22 Friday 10:25 AM New York/1525 GMT

Price Current NetYield % Change

(bps)

Three-month bills 1.54 1.5715 -0.006Six-month bills 1.545 1.5828 0.003Two-year note 99-200/256 1.6153 0.010Three-year note 100-18/256 1.6006 0.008Five-year note 99-108/256 1.6224 0.006Seven-year note 99-112/256 1.7113 0.00610-year note 99-200/256 1.774 0.00230-year bond 103-68/256 2.2251 -0.006

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap -2.50 -0.25

spread

U.S. 3-year dollar swap -5.00 0.00

spread

U.S. 5-year dollar swap -7.50 0.00

spread

U.S. 10-year dollar swap -11.00 0.50

spread

U.S. 30-year dollar swap -38.25 0.75

spread

(Reporting by Gertrude Chavez-Dreyfuss)