TREASURIES-Yields rise as US/China trade deal punishes safe-havens

Updates yields, adds analyst comment

By Tatiana Bautzer and Amanda Cooper

NEW YORK/LONDON, May 12 (Reuters) - U.S. Treasury yields rose on Monday to the highest levels in a month after the United States and China agreed to lower trade tariffs on one another during a 90-day pause, triggering a rush of investor cash into risk assets and hitting safe havens like bonds.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB rose 9 basis points in U.S. trading to 4.465% amid a strong market rally that pushed stocks and the dollar higher.

The world's two largest economies said in a joint statement that they had reached a deal to impose a 90-day pause on tariffs and reciprocal duties would drop sharply, giving investors some confidence that a full-scale trade war may have been averted.

U.S. Treasury Secretary Scott Bessent, speaking after talks with Chinese officials in Geneva, told reporters the two sides had reached the deal that was outlined in a joint statement and that reciprocal rates would drop by 115 percentage points.

President Donald Trump said at the Oval Office that part of the deal includes larger acquisitions of U.S. agricultural products by China.

Tom di Galoma, managing director at Seaport Global Holdings, said the market reaction is warranted because the announcement indicates a trade war between China and the U.S. has been averted.

The 10-year yield is still well above where it was prior to Trump's April 2 "Liberation Day", when he unveiled a flurry of tariffs on U.S. trading partners. At that point, 10-year yields were at 4.15%.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 12.1 basis points to 4.004%. "What we are seeing now are yields rising because of investors' risk-on movement, reversing what had been happening since Liberation Day. It's still difficult to understand what the Fed will do and that will be clearer after some data releases this week", Galoma said.

Markets are predicting rates will not change in June. The highest odds for the next rate cut, with a 52% chance, are for the September meeting, according to CME's FedWatch tool.

"It's a step in the right direction and a positive for U.S. assets and U.S. economy," said Kenneth Broux, senior strategist FX and rates at Societe Generale. Other investor safe havens such as the Swiss franc fell.

A closely watched part of the Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 45.9 basis points, flattening from 48.7 basis points late Friday.

(Reporting by Tatiana Bautzer, Amanda Cooper and Medha Singh; Editing by Kirsten Donovan and Andrea Ricci)

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