Yields rise on trade deal hopes, pare gains on weak data

NEW YORK: US Treasury yields rose on Wednesday as investors sold the safe-haven assets on hopes that the US and China will make progress in trade talks later this week, but yields pared gains after weak US durable goods data for May prompted some buying.

Prices fell, lifting yieids, after US Treasury Secretary Steven Mnuchin was quoted by CNBC as saying the trade deal between the United States and China is "about 90%" complete.

Mnuchin's comments were later restated to show he was using the past tense to describe progress in the US-China talks.

US President Donald Trump also said he would impose additional tariffs on China if he did not reach a trade deal with Chinese leader Xi Jinping, but left open the possibility that the two leaders could make a deal to avert further tariffs at the G20 summit in Japan.

The ongoing US-China trade war is being blamed for slowing international growth and adding more pressure on central banks to adopt looser policies.

Bond prices pared losses after data showed US durable goods fell 1.3 percent in May, adding to concerns about the slowing economy.

"After the durable goods number we started to see Treasuries pare back some of these losses," said Subadra Rajappa, head of US rates strategy at Societe Generale in New York.

"The market tends to be much more sensitive to weakness in data," Rajappa said.

Benchmark 10-year notes were last down 6/32 in price to yield 2.102%, up from 1.992% on Tuesday. The yields have fluctuated around the 2% level since falling to 1.974% on Thursday, the lowest since November 2016.

Yields also rose after St. Louis Federal Reserve Bank President James Bullard said on Tuesday that he does not view two rate cuts as warranted at the US central bank's July meeting, rowing back expectations of how low rates may go in the near term.

Interest rate futures traders are now pricing in a 28 percent chance of a 50 basis point cut in July, down from 38 percent before Bullard's comments, according to the CME group's FedWatch tool. A cut of at least 25 basis points is seen as certain.

The Treasury Department will sell $41 billion in five-year notes on Wednesday, the second sale of $113 billion in coupon-bearing supply this week.

The government sold $40 billion in two-year notes on Tuesday to solid demand.

It will also sell $32 billion in seven-year notes on Thursday.