May 14, 2019 / 7:17 PM / a year ago

TREASURIES-Yields, Wall Street higher as trade tensions cool

(Recasts with rise in yields, adds analyst quote)

By Kate Duguid

NEW YORK, May 14 (Reuters) - Treasury yields rose on Tuesday in sympathy with U.S. stock indexes as hopes for a U.S.-China trade deal boosted demand for risk assets after Monday's heavy sell-off.

Yields were up between 1 and 2 basis points across maturities, but had not fully retraced losses from Monday when yields hit six-week lows. Other safe-haven assets like the Japanese yen and Swiss franc also weakened as investors took relief in conciliatory U.S. comments on trade negotiations.

U.S. President Donald Trump insisted on Tuesday that trade talks with China had not collapsed and called the widening tariff war "a little squabble," even as his administration readied 25% duties. Failure to reach a deal could lead to tariffs this summer on all trade between the world's two largest economies, raising costs and disrupting supply chains across the globe.

"There's a pretty consistent risk-on theme. You see that both in equity markets and in the selling in safe-haven assets such as Treasuries," Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. "It seems like Monday's trade got quite overextended - it's not unusual to see a bounce back after a move of that magnitude."

U.S. stock indexes rebounded on Tuesday as investors snapped up technology shares that took a beating in the prior session. On Monday, stocks had one of their worst sell-offs in 2019 after Trump late on Friday threatened a new round of tariffs on about $300 billion worth of remaining imports from China.

The yield on the benchmark 10-year Treasury note was last up 2 basis points, with other maturities trading within three-tenths of a basis point of the 10-year yield. The Dow Jones Industrial Average was up 1.3%, the S&P 500 was up 1.2%, and the tech-heavy Nasdaq composite was up 1.4%.

U.S. import prices rose less than expected in April as higher petroleum and food costs were tempered by the largest decrease in the price of capital goods in 10 years, suggesting inflation could remain tame.

"The focus of the week is going to be on retail sales tomorrow, on the data front," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale.

"We're not going to a see a feed-through of recent tariff discussions on retail sales. It's really a question of whether we are keeping up the momentum from the first quarter on the consumer front." (Reporting by Kate Duguid; Editing by David Gregorio and Richard Chang)

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