January 15, 2020 / 8:09 PM / in a month

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

 (Refiles with correct name of firm in tenth paragraph, FHN
Financial not FTN Financial)
    By Ross Kerber
    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   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.5375       1.5692    -0.003
 Six-month bills               1.535        1.5728    0.003
 Two-year note                 100-31/256   1.5618    -0.016
 Three-year note               99-204/256   1.5696    -0.018
 Five-year note                100-178/256  1.6034    -0.023
 Seven-year note               100-60/256   1.7141    -0.024
 10-year note                  99-160/256   1.7917    -0.026
 30-year bond                  102-204/256  2.2458    -0.030
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         7.00         1.50    
 spread                                               
 U.S. 3-year dollar swap         3.25         1.25    
 spread                                               
 U.S. 5-year dollar swap         1.00         1.50    
 spread                                               
 U.S. 10-year dollar swap       -4.00         0.75    
 spread                                               
 U.S. 30-year dollar swap      -30.75         0.75    
 spread                                               
 
    

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