December 9, 2016 / 3:17 PM / a year ago

TREASURIES-U.S. bond yields rise on supply, Chinese inflation data

* U.S. 10-year yield set to rise for five straight weeks
    * Chinese producer price data reinforce inflation jitters
    * Bond selling underpinned by ECB plan to cut bond purchases

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Dec 9 (Reuters) - U.S. Treasury yields climbed on
Friday with benchmark yields on track for a fifth straight week
of increases following stronger-than-forecast Chinese inflation
data and ahead of $56 billion of coupon-bearing government bond
supply next week.
    The rise in U.S. yields was also underpinned by ongoing bond
sales tied to European Central Bank's surprise decision on
Thursday to reduce its monthly bond purchases to 60 billion
euros from the current 80 billion euros, starting in April 2017.
    "It's the continuation of the ECB trade," said Jim Vogel,
interest rate strategist at FTN Financial in Memphis, Tennessee.
    Treasury yields retreated from their earlier peaks on
safe-haven bids for U.S. bonds following reports the ECB
rejected Monte Paschi's request for a three-week extension to
raise 5 billion euros. The cash was intended for a rescue plan
so the struggling Italian lender could avert being wound down.
    Benchmark 10-year Treasury note yield was last
at 2.415 percent, up 2 basis points from Thursday after touching
a session high at 2.445 percent earlier on Friday.
    The 10-year yield was poised for the longest streak of
weekly gains since May-June 2013, a period known as the "taper
tantrum" after then Federal Reserve Chairman Ben Bernanke hinted
the U.S. central bank was considering shrinking its bond
    Since the Nov. 8 U.S. election, investors have been dumping
bonds around the world on bets on faster growth and inflation
from tax cuts, more federal spending and stricter trade policies
under a Trump administration that begins in January.
    Inflation worries were reinforced after data showed China's
producer prices rose at the swiftest rate in more than five
years in November. 
    Prospects of faster price increases in the world's two
biggest economies supported the view the Fed is on track to
raise interest rates further in 2017 after a near-certain
quarter point hike next week.  
    Investors may be reluctant to bid aggressively for the
upcoming Treasuries supply before the Fed's rate decision,
analysts said.
    The Treasury Department will sell $24 billion of three-year
notes and $20 billion in 10-year notes on Monday and $12 billion
of 30-year bonds on Tuesday. 
  December 9 Friday 10:02AM New York / 1502 GMT
 US T BONDS MAR7               149-8/32     -0-23/32  
 10YR TNotes MAR7              124-108/256  -0-28/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.5075       0.5152    0.005
 Six-month bills               0.62         0.6305    0.006
 Two-year note                 99-200/256   1.1127    0.005
 Three-year note               98-230/256   1.3855    0.009
 Five-year note                99-154/256   1.8342    0.015
 Seven-year note               99-138/256   2.1967    0.017
 10-year note                  96-92/256    2.4146    0.026
 30-year bond                  95-88/256    3.1153    0.029
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        23.25         0.75    
 U.S. 3-year dollar swap        16.00         1.00    
 U.S. 5-year dollar swap         1.50         0.75    
 U.S. 10-year dollar swap      -13.75         0.25    
 U.S. 30-year dollar swap      -52.25         0.75    

 (Reporting by Richard Leong; Editing by Meredith Mazzilli)
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