REFILE-TREASURIES-Yields fall as investors look past initial trade deal

Ross Kerber

(Refiles with correct name of firm in tenth paragraph, FHN Financial not FTN Financial) BOSTON, Jan 15 (Reuters) - U.S. Treasury yields declined on Wednesday as investors took stock of an initial U.S.-China trade deal and repositioned around new data showing producer prices barely rose in December. The benchmark 10-year yield was down 2.6 basis points in afternoon trading at 1.7917%. The United States and China signed an initial trade deal Wednesday that will roll back some tariffs and boost Chinese purchases of U.S. goods and services, defusing an 18-month conflict between the world's two largest economies. Both governments portrayed their "Phase 1" agreement as a major step after months of start-stop talks. Investors seemed to appreciate the milestone but its broad outlines have been known for weeks, said Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston, reflecting an attitude that left yields stuck in a range below 2%. Many are waiting for a "Phase 2" round to hash out thornier details, he said, making it unlikely Wednesday's agreement would spark much additional growth or inflationary pressure in either country. "This announcement shifted the range a bit higher but is not a reason to cause any break-out" in yields, Lorizio said. Separately in Washington, the Democratic-led House of Representatives voted on Wednesday to send two formal charges against President Donald Trump to the Senate, clearing the way for only the third impeachment trial of a U.S. president to begin. In addition, the U.S. Labor Department said on Wednesday its producer price index for final demand ticked up 0.1% last month after being unchanged in November. Economists polled by Reuters had forecast the PPI climbing 0.2% in December, making Wednesday's report the latest indication of tame inflation pressures that could allow the Federal Reserve to keep interest rates unchanged this year. Investors saw the data and similarly soft reports from Europe as a signal to reposition investments that had been pegged to a growing sense of economic optimism, said Jim Vogel, FHN Financial interest rate strategist. "You can only get ahead of global developments so far," he said. U.S stocks climbed but were off earlier intraday records on Wednesday after the trade deal was signed. Investors also considered the latest earnings reports from big U.S. banks. Bank of America Corp followed JPMorgan Chase & Co and Citigroup Inc in reporting better-than-expected results on loan growth and strength in bond trading, while Goldman Sachs Group Inc missed due to weakness in its investment banking business. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1.6 basis points at 1.5618% in afternoon trading. U.S. inflation, which has fallen short of the Federal Reserve's 2% goal for years, should reach that benchmark next year, pushed by a tight labor market and rising wages, San Francisco Federal Reserve Bank President Mary Daly said on Wednesday.

January 15 Wednesday 2:53PM New York / 1953 GMT

Price Current NetYield % Change


Three-month bills 1.5375 1.5692 -0.003Six-month bills 1.535 1.5728 0.003Two-year note 100-31/256 1.5618 -0.016Three-year note 99-204/256 1.5696 -0.018Five-year note 100-178/256 1.6034 -0.023Seven-year note 100-60/256 1.7141 -0.02410-year note 99-160/256 1.7917 -0.02630-year bond 102-204/256 2.2458 -0.030


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 7.00 1.50


U.S. 3-year dollar swap 3.25 1.25


U.S. 5-year dollar swap 1.00 1.50


U.S. 10-year dollar swap -4.00 0.75


U.S. 30-year dollar swap -30.75 0.75


(Reporting by Ross Kerber in Boston; editing by Jonathan Oatis and Tom Brown)