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TREASURIES-U.S. yields advance on China trade talks optimism

By Gertrude Chavez-Dreyfuss

* U.S. says some products to be removed from China tariff list * China a says spoke with U.S. trade officials * U.S. CPI rises in July * U.S. 30-year yields rise from 3-year low * U.S. 2-year, 10-year yield curve flattest in 12 years (Updates with comments from U.S. trade representative's office, adds yield curve flattening, updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, Aug 13 (Reuters) - U.S. Treasury yields rose on Tuesday, as risk appetite improved, after the Trump administration delayed imposing a 10% import tariff on laptops, cellphones, video game consoles and a wide range of other products made in China, easing trade tensions between the two world's largest economies for now. U.S. 10-year note yields hit session highs, while those on 30-year bonds rallied from more than three-year lows. Traders earlier were bracing for 30-year yields sinking to a record low below 2.08%. The U.S. yield curve, however, continued its flattening trend, reflecting still-elevated anxiety. The spread between U.S. 2-year and 10-year note yields, a closely watched metric for recession signals, further narrowed to 1.4 basis points, the flattest level in more than 12 years, according to Refinitiv data. The delay in the U.S. tariffs had been scheduled to start next month. The U.S. Trade Representative's Office action was published just minutes after China's Ministry of Commerce said Vice Premier Liu had a phone conversation with U.S. trade officials. "We got this trade headline and we saw equities jump 400 points, and that's led to some Treasury selling. So, it's overall trade optimism for global markets," said Justin Lederer, Treasury trader at Cantor Fitzgerald in New York. That said, market sentiment remained cautious overall. Tuesday's data showing a pickup in U.S. inflation in July earlier pushed yields slightly higher. Analysts said the higher inflation was a positive sign for the U.S. economy, but was likely not enough to deter the Federal Reserve from cutting interest rates at the next policy meeting in September. The Labor Department said on Tuesday the U.S. consumer price index climbed 0.3% last month, lifted by gains in the cost of energy products and a range of other goods. Excluding the volatile food and energy components, the CPI gained 0.3% after rising by the same margin in June. "I really think we need to see a string of stronger inflation data before we see a mutual change in sentiment that is very focused on backward-looking inflation and recent data showing that inflation is nowhere to be found in Europe and Japan and it's sluggish in the U.S.," said Bill Merz, director of fixed income at U.S. Bank Wealth Management in Minneapolis. In midday trading, U.S. benchmark 10-year Treasury note yields rose to 1.684% from 1.64% late on Monday. Yields on 30-year bonds advanced to 2.143% from 2.13% on Monday. Thirty-year yields earlier hit 2.097%, their lowest level since July 2016. At the short end of the curve, U.S. two-year yields rose to 1.656% from Monday's 1.58%. August 13 Tuesday 11:40 AM New York / 1540 GMT Price Current Net Yield % Change (bps) Three-month bills 1.965 2.0078 0.011 Six-month bills 1.91 1.9608 0.026 Two-year note 100-46/256 1.6564 0.076 Three-year note 99-188/256 1.591 0.083 Five-year note 100-224/256 1.566 0.081 Seven-year note 101-166/256 1.6236 0.067 10-year note 99-116/256 1.6847 0.045 30-year bond 102-84/256 2.1444 0.014 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap -1.00 0.25 spread U.S. 3-year dollar swap -3.25 0.50 spread U.S. 5-year dollar swap -6.50 0.25 spread U.S. 10-year dollar swap -10.50 0.75 spread U.S. 30-year dollar swap -39.25 0.50 spread (Reporting by Gertrude Chavez-Dreyfuss; editing by Steve Orlofsky and Jonathan Oatis)