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TREASURIES-U.S., Chinese data lift U.S. bond yields ahead of supply
December 9, 2016 / 8:18 PM / a year ago

TREASURIES-U.S., Chinese data lift U.S. bond yields ahead of supply

* U.S. 10-year yield posts longest run of weekly gains since
    * U.S. 30-year yield touches highest level since July 2015
    * Chinese producer price data reinforce inflation jitters
    * U.S. consumer sentiment strongest in 23 months - U.

 (Updates to late U.S. market action)
    By Richard Leong
    NEW YORK, Dec 9 (Reuters) - U.S. Treasury yields climbed on
Friday with benchmark yields marking a fifth consecutive week of
increases on stronger-than-forecast data on China inflation and
U.S. consumer sentiment ahead of $56 billion in government debt
supply next week.
    The rise in U.S. yields was also underpinned by ongoing bond
sales after the European Central Bank's decision on Thursday to
reduce its monthly bond purchases to 60 billion euros from the
current 80 billion euros, starting in April, as it extended its
quantitative easing into the end of 2017. 
    "It's still accommodative but it's acknowledgement it has
reached its limits," said Michael Arone, chief investment
strategist at State Street Global Advisors in Boston.
    Treasury yields briefly retreated from their earlier peaks
on safe-haven bids for U.S. bonds following reports the ECB
rejected Monte Paschi's request for an extension to raise cash
intended for a rescue plan so the struggling Italian lender
could avert being wound down. 
    The benchmark 10-year Treasury note yield was
last at 2.467 percent, up 8 basis points from Thursday and not
far from a near 1-1/2 year peak set on Dec. 1.
    The 10-year yield recorded its longest streak of weekly
increase since May-June 2013, a period known as the "taper
tantrum" after then Federal Reserve Chairman Ben Bernanke hinted
the Fed was considering shrinking its bond purchases.
    The yield on 30-year bonds touched 3.171 percent, its
highest since July 2015 before edging down to 3.159 percent in
late trading, up 7 basis points on the day.
    Since the Nov. 8 U.S. election, investors have been dumping
bonds globally on bets of faster growth and inflation under a
Trump administration.
    Inflation worries were reinforced after data showed China's
producer prices rose at the swiftest rate in more than five
years in November. 
    U.S. consumer sentiment strengthened to its strongest since
January 2015 in early December, although the outlook for
consumer inflation fell, according to the University of
    Prospects of improvement 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. 
    "People have to price in an uncertainty premium," said
Robert Tipp, chief investment strategist at PGIM Fixed Income in
Newark, New Jersey.
  December 9 Friday 3:07PM New York / 2007 GMT
 US T BONDS MAR7               148-14/32    -1-17/32  
 10YR TNotes MAR7              123-248/256  -0-144/2  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.5325       0.5406    0.031
 Six-month bills               0.6275       0.6382    0.013
 Two-year note                 99-188/256   1.1369    0.029
 Three-year note               98-204/256   1.4212    0.045
 Five-year note                99-90/256    1.8873    0.068
 Seven-year note               99-44/256    2.254     0.074
 10-year note                  95-232/256   2.4674    0.078
 30-year bond                  94-140/256   3.1579    0.072
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        22.75         0.25    
 U.S. 3-year dollar swap        15.50         0.50    
 U.S. 5-year dollar swap         1.00         0.25    
 U.S. 10-year dollar swap      -14.00         0.00    
 U.S. 30-year dollar swap      -51.50         1.50    

 (Reporting by Richard Leong; Editing by Meredith Mazzilli and
Andrew Hay)

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