* Investors look for signs of trade progress between US, China * Empire State index rises more than expected * Beige Book shows labor market softening (Updates to US afternoon trading) By Chuck Mikolajczak NEW YORK, Oct 15 (Reuters) – U.S. Treasury yields rose in a choppy session on Wednesday, as investors gauged the latest comments from U.S. officials on the trade situation with China while the U.S. government shutdown showed little signs of ending soon. Yields had moved lower earlier in the session after U.S. Trade Representative Jamieson Greer described China's major expansion of its rare earths export controls as a complete repudiation of U.S.-Chinese trade agreements over the past six months. In addition, Treasury Secretary Scott Bessent said it is not clear whether China's recent restrictions on exports of rare earth minerals represent a split politically inside its trade negotiating team, but that he doesn't believe Beijing wants to be an "agent of chaos." "It's on the trade stuff … it seems to be keying off of them for some reason. Nothing seems to be getting done, and if anything, I think it's China becoming sort of a lone wolf here," said Tom di Galoma, managing director at Mischler Financial Group in Stamford, Connecticut. However, yields reversed course after reaching levels not seen in several weeks. "Yields couldn't hold below some key levels, 3.50% on the two-year and 4% on the 10s, so just backing away from that, thinking that maybe the market's gone a little too far, too fast," said Kim Rupert, managing director, global fixed income at Action Economics in San Francisco. "Risk appetite is still almost booming, but I think the bonds just ran out of steam." The yield on the benchmark U.S. 10-year Treasury note rose 2.2 basis points to 4.044% after hitting 3.999% on the session. That follows the one-month low of 3.998% reached on Tuesday. The yield on the 30-year bond rose 1.8 basis points to 4.642%. Investors were also still grappling with a lack of U.S. economic data as the government shutdown drags on to its 15th day. Bessent said the shutdown is costing the economy about $15 billion a day in lost output. However, the Federal Reserve Bank of New York said its Empire State manufacturing index rose to 10.7 in October, up from negative 8.7 in September and negative 1.4 estimate of economists polled by Reuters. In addition, the Fed's Beige Book indicated economic activity was little changed and employment was largely stable in recent weeks even as more businesses reported headcount reductions, supporting concerns about a weakening of the labor market. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 53.8 basis points. On Tuesday, Fed Chair Jerome Powell said that policymakers will take a "meeting-by-meeting" approach to any further interest rate cuts and that the central bank may be nearing the end of its quantitative tightening effort to reduce the size of its holdings, keeping market expectations for the path of monetary policy largely intact. Also on Tuesday, Federal Reserve Bank of Boston President Susan Collins said that rising job market risks argue for another rate cut. Markets are almost completely pricing in a 25 basis point cut from the Fed at its October meeting, with expectations currently at 97.8%, according to CME's FedWatch Tool. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, advanced 2.5 basis points to 3.504% after touching a low of 3.466%, matching the five-week low hit on Tuesday. Fed Governor Stephen Miran said on Wednesday that two more cuts from the central bank this year "sounds realistic." The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.351%, its lowest since July 2. The 10-year TIPS breakeven rate was last at 2.297%, indicating the market sees inflation averaging about 2.3% a year for the next decade. (Reporting by Chuck Mikolajczak, Editing by Nick Zieminski and Diane Craft)
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