TREASURIES-U.S. yields tumble as China trade deal already priced in

* China, U.S. agree on text of Phase one deal
* U.S., China to cancel new tariffs on each other's goods
* China to buy more U.S. goods and services
* U.S. yield curve steepens as trade worries ease
* U.S. retail sales rise less than expected

(Adds new comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 13 (Reuters) - U.S. Treasury prices rose on
Friday, pushing yields sharply lower, as investors shrugged off
news the United States and China have agreed on a preliminary
trade deal, cutting back some U.S. tariffs in exchange for more
Chinese purchases of American agricultural products and other
goods.
Treasury prices had advanced in earlier trading, as
investors bought them back after steep falls the previous
session.
Analysts said the deal has largely been priced in, ending
weeks of back-and-forth speculation about the two countries'
trade negotiations.
Under the phase one trade agreement, no new tariffs will be
applied on both Chinese and U.S. products on Sunday. The United
States will also modify its tariffs on Chinese goods in a
"significant way," while China has agreed to buy $32 billion in
additional agricultural goods over the next two years.

"For the most part, this is the average of what the
pessimists and the optimists have priced in," said Guy LeBas,
chief fixed income strategist at Janney Montgomery Scott in
Philadelphia.
"The actual news has not moved Treasury valuations much.
Also keep in mind that the interest rate market has priced in a
lot of these yesterday," he added.
On Thursday, news reports already touted an agreement in
principle of a "phase one" trade deal with China, with the
United States offering to cut tariffs on certain Chinese goods
by 50% and suspending tariffs on $160 billion in goods scheduled
for Sunday.
U.S. Treasury yields rallied to four-week highs on the news.
Dan Heckman, senior fixed income strategist, at U.S. Bank
Wealth Management in Kansas City, Missouri was skeptical,
however, of further trade progress ahead of a presidential
election.
"It has taken us a number of years to get to phase one," he
said.
In afternoon trading, the yield on the U.S. 10-year note
fell to 1.819% from 1.899% late on Thursday.
Yields on 30-year bonds dropped to 2.254% from
2.321% on Thursday.
U.S. two-year yields, meanwhile, were down at
1.599%, from Thursday's 1.67%.
With trade concerns on the back burner, the yield curve
steepened, with the spread between the two-year and 10-year note
yields rising to as much as 26 basis points, the
widest gap in four weeks.
"The main near-term impact of the phase one deal, assuming
it actually gets signed, is that it removes the threat of final
consumer tariffs and adds to the sense that the downside risks
to the economy are fading," said Michael Pearce, senior U.S.
economist, at Capital Economics in New York.
The anticipation of a trade deal has overshadowed a
lackluster retail sales report, which showed a
lower-than-expected 0.2% increase in November. That
could negatively affect economic growth in the fourth quarter,
analysts said.

December 13 Friday 2:50 PM New York/1950 GMT



Price Current Net
Yield % Change
(bps)
Three-month bills 1.5325 1.5638 -0.008
Six-month bills 1.525 1.5622 -0.016
Two-year note 99-207/256 1.5996 -0.070
Three-year note 100-4/256 1.6196 -0.077
Five-year note 99-74/256 1.6499 -0.086
Seven-year note 99-40/256 1.7543 -0.085
10-year note 99-100/256 1.8174 -0.082
30-year bond 102-172/256 2.2517 -0.069

DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 3.00 1.50
spread
U.S. 3-year dollar swap -1.50 1.00
spread
U.S. 5-year dollar swap -2.75 0.50
spread
U.S. 10-year dollar swap -7.25 -0.50
spread
U.S. 30-year dollar swap -32.00 -0.75
spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve
Orlofsky and Nick Zieminski)