US bond yields rise on hopes on trade, soft auction

• Donald Trump were mulling an interim trade deal with China and soft demand at a 30-year bond auction.
• ECB action overshadowed a stronger-than-expected US core inflation number.
• The government is seriously considering issuing a 50-year bond next year.

NEW YORK: US Treasury prices fell on Thursday with 10-year yields hitting five-week highs, following a report that suggests advisers to President Donald Trump were mulling an interim trade deal with China and soft demand at a 30-year bond auction.

The bond market reversed earlier gains in step with its European counterpart, after the European Central Bank cut interest rates to a record low and said it would restart asset purchases to boost its slumping economy.

That move in Treasuries faded, however, after Bloomberg News reported that Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some US tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases.

"The headlines on trade are pro-growth," said Jon Hill, senior rates strategist at BMO Capital Markets in New York.

"Trade is obviously hard to price and it could unwind with one tweet, but incrementally, this is a risk-on impulse."

However, a CNBC report, citing a senior White House official, said an interim deal was "absolutely not" on the table.

In midafternoon US trading, US benchmark 10-year note yields were up 5.10 basis points at 1.7837pc after hitting rose 1.801pc, their highest level since Aug. 5.

Thirty-year bond yields were 5.80 basis points higher at 2.2658pc.

They reached 2.28pc, the highest since Aug. 12.

Longer-dated yields were also pressured by comments from US Treasury Secretary Steven Mnuchin who said on Thursday the government is seriously considering issuing a 50-year bond next year.

Other Treasury yields rose toward or above their 50-day moving averages, a move seen as a technical sign of a possible  further rise in yields.

US yields hit their session peaks following somewhat weak demand for $16 billion of 30-year bonds, part of this week's $78 billion in coupon-bearing Treasury debt.

Earlier, US yields fell in reaction to the ECB's cut its deposit rate to an all-time low of -0.5pc from -0.4pc. The bank said it will restart bond purchases of 20 billion euros a month from November.

Germany's 10-year bond yield earlier tumbled, while 30-year debt fell almost 20 basis points at one point .

Italian 10-year bond yields hit a record low of 0.782pc.

US and European yields reversed their earlier drop,  following reports the ECB President Mario Draghi faced pushback from representatives of Germany and France on the restart of QE.

This raised concerns whether his successor, Christine Lagarde,  would be limited in her policy choices in the future.

The earlier ECB action overshadowed a stronger-than-expected US core inflation number, an annual gain of 2.4pc, the largest in a year.

The inflation report, however, should not prevent the Federal Reserve from raising interest rates later this month.