December 3, 2018 / 2:33 PM / 6 months ago

TREASURIES-Yields rise as U.S., China trade deal boosts risk appetite

    * U.S., China agree to hold off on new tariffs
    * Fed Chairman Powell's testimony in focus
    * Bond market to close Wednesday to mourn President Bush

    By Karen Brettell
    NEW YORK, Dec 3 (Reuters) - U.S. Treasury yields rose on
Monday after a deal between the U.S. and China to hold off on
new tariffs boosted risk appetite and reduced demand for safe
haven U.S. debt.
    The agreement between U.S. President Donald Trump and
Chinese President Xi Jinping on Saturday at a meeting of the
Group of 20 industrialized nations comes after months of
escalating tensions on trade and other issues.             
    “We’ve seen a repricing in the Treasury market as a result
of some of the optimism that came out of the G20,” said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets in
New York.
    Price losses were relatively muted, however, as skepticism
remained that many trade issues remain unresolved.
    “Clearly it is progress to delay the implementation of some
of Trump’s looming tariffs, however I don’t think that the
market is interpreting this as clear resolution to a problem,”
Lyngen said.
    Benchmark 10-year notes             fell 5/32 in price to
yield 3.030 percent, up from 3.013 percent at Friday’s close.
The yields dipped as low as 2.988 percent on Friday, the lowest
since Sept. 18.
    Testimony by Federal Reserve Chairman Jerome Powell this
week will be scoured for any new indications of how many more
times the U.S. central bank is likely to hike rates.
    Powell last Wednesday appeared to adopt a more dovish tone
than expected when he said that the Fed’s policy rate is now
“just below” neutral, a level that nether brakes nor accelerates
the economy.             
    The Fed is widely expected to raise rates at its meeting on
Dec. 18-19. However, interest rate futures traders are now
pricing in only one rate increase during 2019, below Fed
projections of three, according to the CME Group’s FedWatch
    Powell was scheduled to testify on Wednesday to a
congressional Joint Economic Committee, but the hearing is
expected to be postponed to Thursday because of a national day
of mourning for U.S. President George H.W. Bush, who died on
Friday at the age of 94.             
    Stock and bond markets will be closed on Wednesday.

 (Editing by Susan Thomas)
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