Yields rise on US-China trade, Brexit optimism

NEW YORK: US Treasury yields climbed on Wednesday on signs of progress in US-China trade discussions and easing tensions on Britain's exit from the European Union after UK Prime Minister Theresa May looked to have garnered enough support to survive a no-confidence vote.

US yields rose after steep declines last week amid a slew of geopolitical headlines. Those jitters seem to have waned this week as US long-dated debt sported gains for three straight sessions.

In an exclusive interview with Reuters, Trump said on Tuesday China was buying a "tremendous amount" of US soybeans, and bilateral talks were underway by phone, with more meetings likely between both countries.

Further adding to the selloff in Treasuries were easing tensions on Brexit, analysts said.

At least 158 of May's Conservative party colleagues publicly indicated support for her before a no-confidence vote on Wednesday, enough for a simple majority.

"Risk assets appear willing to assume May's eventual survival of a no-confidence vote means forward progress on Brexit," said Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee.

"Lots of reasons to be skeptical of that notion, though, the same way it's difficult to see small trade steps with China indicating a longer march to a healthier economic relationship with the US," he added.

US Treasury prices also remained lower after a lackluster 10-year auction, picking up a yield of 2.915 percent, higher than that before the bid deadline.

The ratio of bids to the amount offered was 2.35, the lowest reading since February. This measure of overall auction demand was 2.54 at November 's 10-year note sale.

In afternoon trading, US 10-year note yields rose to 2.902 percent, from 2.881 percent late on Tuesday.

US 30-year bond yields were also up at 3.142 percent , from 3.128 percent on Tuesday.

On the short end of the curve, however, US two-year yields were slightly down on the day at 2.768 percent, from Tuesday's 2.772 percent.

The rise in yields, however, was tempered by a tame reading of US consumer prices last month.

Data showed US consumer prices were unchanged in November, the weakest reading in eight months, backing expectations that the Federal Reserve could slow the pace of interest rate hikes next year.

The Labor Department said last month's flat reading in the Consumer Price Index followed a 0.3 percent rise in October, and was due to a sharp decline in gasoline prices. Excluding the volatile food and energy components, the CPI rose 0.2 percent, matching October's gain.

The data, however, won't prevent the US Federal Reserve from raising interest rates next month, as underlying inflation remained stable.

But Andrew Hunter, US economist at Capital Economics in London said the "Fed won't hesitate to move to the sidelines if activity growth begins to slow more sharply."