Yields lower with FOMC, U.S.-China trade talks in view

(Recasts, updates yields, adds Fed news)

By Kate Duguid

NEW YORK, Feb 19 (Reuters) - Treasury yields were lower in Tuesday afternoon trade ahead of the release on Wednesday of minutes from the Federal Reserve's January policy-setting meeting and as trade talks between the United States and China neared their March 1 deadline.

Yields fell across the board, with maturities in the middle of the yield curve making the biggest moves. The three-year yield was last down 2.2 basis points and the five-year yield was last down 2 basis points.

Investors will scrutinize the minutes from the Federal Open Market Committee (FOMC) after a dovish statement in January. Fed Chair Jerome Powell had said U.S. central bank policy makers would be "patient" after signs of an economic slowdown roiled financial markets in December.

Two-year yields, a proxy for market expectations for rate hikes, were 1.8 basis points lower, at 2.502 percent, suggesting investors expect the minutes to reaffirm a slower pace of rate hikes.

"The FOMC minutes in particular for U.S. rates will be worth watching. We're looking for more details on balance sheet discussions - not only the timing of when runoff will end, but potential discussions around what the reinvestment policy will look like, what the composition of the portfolio will look like," said Jonathan Cohn, interest rate strategist at Credit Suisse.

New York Fed President John Williams on Tuesday said he was comfortable with the level U.S. interest rates are at now, and sees no need to raise them again unless growth or inflation shift to an unexpectedly higher gear.

In an interview with Reuters, Williams said he felt rates had reached his current view of a lower "neutral" level, with growth and unemployment leveling off and inflation, if anything, a bit weaker than hoped for.

U.S. President Donald Trump said that the latest round of trade negotiations which began Tuesday with China were going well and suggested he was open to pushing off the March 1 deadline to complete negotiations.

Tariffs on $200 billion worth of Chinese imports are scheduled to rise to 25 percent from 10 percent by March 1 if the world's two largest economies do not settle their trade dispute.

Treasuries are a safe-haven investment that draw investors in times of global tumult. Tuesday's rise in Treasury prices, and fall in yields, suggested a decreased appetite for risk.

The benchmark 10-year government yield was last down 1.4 basis points at 2.652 percent. (Reporting by Kate Duguid in New York; Editing by David Gregorio and James Dalgleish)

First Published: 2019-02-19 17:47:12
Updated 2019-02-19 22:37:23

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