September 7, 2018 / 6:18 PM / 10 months ago

TREASURIES-Yields rise as higher wages boost inflation expectations

 (Adds Trump's comments, updates prices)
    * U.S. 10-year Treasury yields highest since Aug. 10
    * Annual wage growth largest since 2009
    * Traders raise odds of U.S. rate hike in December 
    * Trump warns of new tariffs on China

    By Karen Brettell
    NEW YORK, Sept 7 (Reuters) - U.S. benchmark Treasury yields
rose on Friday to their highest levels in almost a month after
the largest annual increase in wages since 2009 raised
expectations of higher inflation.
    Average hourly earnings increased 0.4 percent, or 10 cents
in August. That raised the annual increase in wages to 2.9
percent in August, the largest gain since June 2009.
    Nonfarm payrolls surged by 201,000 jobs last month, boosted
by hiring at construction sites, wholesalers and professional
and business services, the Labor Department said.             
    “The key to watch is the wages because we’re already at
quite a low employment rate and we’ve already had many, many
months in a row of job adds,” said Lou Brien, a market
strategist at DRW Trading in Chicago.
    “If it does this again next month, and the month after that,
then it will have consequences for the Fed. They will most
certainly not take any time off if you get wages moving up in a
significant way,” Brien added.
    U.S. benchmark 10-year Treasury notes             fell 18/32
in price to yield 2.941 percent, up from 2.877 percent on
    Interest rate futures traders are fully pricing in a rate
increase at this month’s Federal Reserve meeting, according to
the CME Group’s FedWatch Tool. The odds of an additional hike in
December, which would be the fourth this year, rose to 79
percent, from 67 percent before the jobs data.
    The New York Federal Reserve on Friday also increased its
estimates on U.S. economic growth in the second half of 2018
following stronger-than-forecast data on manufacturing sector
activities in August.             
    Investors have been balancing strong economic growth and
expectations of further rate increases against various risks
that threaten to derail global growth.
    Treasuries pared price losses after President Donald Trump
said he has tariffs ready to go on a further $267 billion worth
of Chinese imports, as the world awaits his decision on imposing
levies on $200 billion worth of the Asian nation's goods.
    Trump also said the United States and Japan have begun
discussion over trade, saying that Tokyo "knows it's a big deal"
if an agreement cannot be reached.             
    Canada's top trade negotiator and her American counterpart
started a third day of talks to save the North American Free
Trade Agreement on Friday as differences between the two sides
appeared to have narrowed.             

 (Reporting by Karen Brettell; Editing by Dan Grebler)
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