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TREASURIES-U.S. yields rise, tracking German bonds, on stimulus talk

By Gertrude Chavez-Dreyfuss

By Gertrude Chavez-Dreyfuss NEW YORK, Sept 10 (Reuters) - U.S. Treasury yields climbed to fresh three-week peaks on Tuesday, tracking German bonds, as risk appetite continued to improve amid diminishing U.S.-China trade tensions and expectations of fiscal stimulus measures from Germany, Europe's largest economy. Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia, said on the margin, market sentiment has turned for now. "What has really fallen away and taken less tail downside risk off the table was a bit of calming in the trade rhetoric," he added. Washington and Beijing could be back at the negotiating table sometime this month. U.S. yields rose for a second straight session, with investors also awaiting a key monetary policy meeting at the European Central Bank on Thursday. Investors expect the ECB to cut interest rates, but may introduce some form of compensation for banks to offset the unwelcome side effects of negative interest rates. "The real fulcrum event is the ECB meeting and that will drive Bunds, which in turn, have had a massive influence on Treasuries over the course of the last eight weeks or so," LeBas said. Germany's 30-year government bond yield briefly turned positive on Tuesday, ahead of the ECB meeting and bolstered by possible stimulus measures from its government. German Finance Minister Olaf Scholz said on Tuesday the government can counter a possible economic crisis by injecting billions of euros into the economy, signaling readiness for a big stimulus package if the economy tips into recession. In morning trading, U.S. benchmark 10-year note yields rose to 1.643% from 1.622% late on Monday. Early in the session, 10-year yields hit a three-week high of 1.658%. Since the beginning of the year, however, 10-year yields have fallen more than 100 basis points. "There's room for a little bit of bounce," said Janney's LeBas. "There's support around 1.71% in the 10-year." But this is all temporary, he said. "Twelve months from now, I suspect rates will have revisited the all-time lows." Yields on 30-year bonds advanced to 2.118% from 2.098% on Monday, rallying from record lows of 1.905% touched in late August. U.S. 30-year yields also hit a three-week peak of 2.141% earlier in the global session. At the short end of the curve, U.S. two-year yields rose to 1.603% from Monday's 1.575%, hitting a three-week high as well of 1.609%. Later on Tuesday, the U.S. Treasury kicks off $78 billion in auctions this week with the $38 bln three-year note offering. September 10 Tuesday 10:00 AM New York / 1400 GMT Price Current Net Yield % Change (bps) Three-month bills 1.9175 1.9591 0.000 Six-month bills 1.8325 1.8805 0.010 Two-year note 99-206/256 1.601 0.026 Three-year note 99-224/256 1.5437 0.028 Five-year note 98-200/256 1.5054 0.028 Seven-year note 98-156/256 1.5865 0.029 10-year note 99-208/256 1.6455 0.023 30-year bond 102-228/256 2.119 0.021 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap -0.25 0.25 spread U.S. 3-year dollar swap -4.25 0.50 spread U.S. 5-year dollar swap -6.25 0.00 spread U.S. 10-year dollar swap -11.25 -0.25 spread U.S. 30-year dollar swap -41.75 -0.50 spread (Reporting by Gertrude Chavez-Dreyfuss Editing by Chizu Nomiyama)