Bond sell-off pauses, US-China trade deal in focus

• US Treasury prices gained on Wednesday on a report that a US-China meeting to sign a trade deal could be delayed until December.
• Benchmark 10-year notes gained 16/32 in price to yield 1.809%, down from 1.865% late Tuesday.

NEW YORK: US Treasury prices gained on Wednesday on a report that a US-China meeting to sign a trade deal could be delayed until December, while some investors also repositioned after a three-day sell-off.

Reuters reported that the meeting between US President Donald Trump and Chinese President Xi Jinping could be pushed back as discussions continue over terms and venue.

The report dented risk appetite, sending stocks lower and boosting demand for safe haven US government bonds.

"Long term yields in particular are going to move with the shifts in the trade situation," said Mike Schumacher, head of rate strategy at Wells Fargo in New York.

Benchmark 10-year notes gained 16/32 in price to yield 1.809%, down from 1.865% late Tuesday.

The United States and China are working to narrow their differences enough to sign a "phase one" agreement.

If the United States agrees to remove existing tariffs on Chinese goods it would likely boost risk taking, and send Treasury yields higher with 10-year note yields possibly heading back above the key 2% level.

"Getting back to 2-plus doesn't seem like much of a hurdle, in particular if some of the tariffs get rolled back," Schumacher said.

Bonds have weakened since Friday on optimism a deal will be reached, and after data showed job growth slowed less than expected in October while wages rose.

A stronger-than-expected service sector report on Tuesday reinforced the view that the US economy is solid, and that the Federal Reserve is unlikely to continue cutting rates in the near-term, after making three rate cuts this year.

New York Federal Reserve President John Williams said Wednesday any interest rate changes will depend on upcoming economic data.After three days of losses, bonds are also likely being supported by investor repositioning.

"We have been down quite a number of days in a row and there is maybe a little bit of short covering going on here," said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.

The Treasury Department sold $27 billion in 10-year notes on Wednesday to strong demand.

The government sold $38 billion in three-year notes on Tuesday and will sell $19 billion of 30-year bonds on Thursday.