Wires

TREASURIES-Yield edge higher, U.S.-China talks in focus

Karen Brettell

* Geopolitical tensions between U.S., China in focus

* Month-end demand helps bond markets

* Next week's jobs report next major economic focus

NEW YORK, Nov 29 (Reuters) - U.S. Treasury yields inched higher on Friday, erasing an earlier fall after China said it would retaliate to the United States passing legislation backing anti-government protestors in Hong Kong, potentially reducing the chance that the two countries will reach a deal to deescalate their trade war. Bond yields fell overnight after China said on Thursday that it would take "firm counter measures" in response to U.S. legislation, and that attempts to interfere in the Chinese-ruled city were doomed to fail. It comes after officials in both countries have talked up the odds that the U.S. and China will reach a phase one trade deal, which may include a rollback in tariffs placed on each others goods. Benchmark 10-year note yields were last 1.774%, up from 1.767% late Wednesday. The bond market was closed on Thursday for the Thanksgiving Day holiday and will close early at 2:00 pm EST on Friday. Trading volumes were light as many traders and investors remained on holiday between Thanksgiving Day and the weekend. Month-end demand by investors rebalancing bond portfolios was seen as helping demand for bonds on Friday. The New York Federal Reserve also injected $88.45 billion in liquidity into the overnight repurchase agreement market on Friday as part of its ongoing operations to support short-term funding markets. Funding stresses in September prompted the Federal Reserve to intervene and it has pledged to continue the operations through the year-end period, when banks and other investors reduce risk taking, which can elevate funding stresses. The next major U.S. economic focus will be the jobs report for November, which will be released next Friday.

November 29 Friday 9:27AM New York / 1427 GMT

Price Current Net ChangeYield % (bps)Three-month bills 1.565 1.5928 -0.015Six-month bills 1.5825 1.6216 0.003Two-year note 99-192/256 1.6279 0.002Three-year note 100 1.6249 0.008Five-year note 99-92/256 1.6341 0.010Seven-year note 99-88/256 1.725 0.00610-year note 99-200/256 1.774 0.00730-year bond 103-236/256 2.1956 0.004

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 0.25 0.00

spread

U.S. 3-year dollar swap -3.25 0.00

spread

U.S. 5-year dollar swap -4.75 0.00

spread

U.S. 10-year dollar swap -8.25 -0.25

spread

U.S. 30-year dollar swap -33.25 0.25

spread

(Editing by Chizu Nomiyama)