October 3, 2018 / 7:09 PM / a year ago

TREASURIES-Yields hit decade highs as case for U.S. Dec rate hike mounts

 (Recasts; updates yields, adds analyst quote)
    By Kate Duguid
    NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields reached
multiyear peaks, with the 10-year note's yield at its highest
since 2014 and maturities at the short end of the curve at
decade highs, after economic data on Wednesday bolstered the
case for the Federal Reserve to raise rates in December.
    The yield on  the benchmark 10-year note was on
track for its largest daily jump since the U.S. presidential
election in November 2016 as U.S. service sector activity hit a
21-year high and the ADP private payrolls data for September
came in stronger than expected.
    "This is a bigger reaction to economic data than anything
we've seen lately," said Gene Tannuzzo, senior portfolio manager
at Columbia Threadneedle Investments.
    The upbeat reports on Wednesday are likely keep the Fed on
track to raise interest rates again in December. The U.S.
central bank increased rates last week for the third time this
year. Fed Chairman Jerome Powell said on Tuesday the economy's
outlook was "remarkably positive."
    At the long end of the curve, the 30-year yield
rose more than 12.5 basis points to 3.339 percent, its highest
since September 2014. Benchmark 10-year government yields
, which reflect the market's view on the overall
health of the economy, were up nearly 12 basis points at 3.179
    The yield on the two-year note, which reflects
market  expectations of interest rate hikes, rose to 2.868
percent, its highest since June 2008, when it topped 3 percent.
Yields on the three- and five-year notes
rose to their highest since December 2007 and October 2008
    The Institute for Supply Management (ISM) said its
non-manufacturing activity index jumped 3.1 points to 61.6 last
month, the highest reading since August 1997. The survey's
factory employment measure rose to 62.4 in September from 56.7
in August. This suggests September's nonfarm payrolls could
surprise on the upside when the government publishes its more
comprehensive employment report on Friday.

    Private payrolls rose by 230,000 jobs in September, the
largest gain since February, the ADP National Employment Report
showed, after an upwardly revised 168,000 increase in August. 
    "Since today's data came in well above market expectations,
this release is likely to inspire other forecasters to revise
their forecasts (for Friday's nonfarm payrolls report) higher,"
said Ward McCarthy, money market economist at Jefferies. 

  Wednesday, Oct. 3 at 1442 EDT (1842 GMT):
 US T BONDS DEC8                 138-12/32   -2-4/32     
 10YR TNotes DEC8                118-28/256  -0-180/256  
                                 Price       Current     Net
                                             Yield       Change
                                             (pct)       (bps)
 Three-month bills               2.18        2.2225      0.000
 Six-month bills                 2.35        2.4113      0.008
 Two-year note                   99-200/256  2.8638      0.049
 Three-year note                 99-114/256  2.9475      0.067
 Five-year note                  99-76/256   3.0279      0.085
 Seven-year note                 99-80/256   3.1102      0.098
 10-year note                    97-144/256  3.1643      0.108
 30-year bond                    93-216/256  3.3267      0.120
   DOLLAR SWAP SPREADS                                   
                                 Last (bps)  Net Change  
 U.S. 2-year dollar swap spread   16.00       -1.00      
 U.S. 3-year dollar swap spread   14.75       -1.00      
 U.S. 5-year dollar swap spread   10.75       -0.75      
 U.S. 10-year dollar swap          4.50       -0.75      
 U.S. 30-year dollar swap         -9.25       -1.00      


 (Reporting by Kate Duguid; 
Editing by Andrea Ricci, Alistair Bell and David Gregorio)
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