January 5, 2018 / 8:27 PM / a year ago

REFILE-TREASURIES OUTLOOK-U.S. yields rise as investors brush off payroll miss

 (Corrects paragraph 4 spelling to sift from shift)
    * Traders see Fed hiking rates in March despite Dec payroll
    * Some investors see wage inflation pickup after tax reform
    * Rising yields not a challenge to Wall Street's record run
    * Corporate, government supply puts pressure on bond yields

    By Richard Leong
    NEW YORK, Jan 5 (Reuters) - U.S. Treasury yields rose on
Friday with the two-year yield hovering near a more than
nine-year peak as investors stuck to the view of a possible rate
increase in March, brushing off a disappointing figure on
domestic hiring for December.
    The notion of a healthy U.S. economy was intact even after
the Labor Department said on Friday employers added 148,000
workers last month, fewer than the 190,000 forecast by analysts
polled by Reuters.
    Offsetting that though was a 0.3-percent increase in wages
and a jobless rate holding at a 17-year low of 4.1 percent.
    "This still represents a solid labor market," said Bill
Northey, chief investment officer at the private client group of
U.S. Bank in Helena, Montana. "As investors were able to sift
through the data, they concluded it is not a harbinger for
weaker economic activity."
    Continued steady growth, which many analysts believe would
be buttressed by the federal tax cuts passed in December, 
pushed Wall Street's major indexes to record highs on Friday.
    Appetite for stocks and other risky assets in the first week
of 2018 has led to reduced holdings in U.S. government debt even
as two-year Treasuries are yielding more than S&P 500 stocks
    "The higher (two-year) yield may entice some investors who
see it meeting their income need, but it's not enough to derail
the equity market in our view," Northey said. 
    Moreover, the upward pressure on yields will likely persist
due to debt supply. Companies issued $21.55 billion in U.S.
high-grade bonds so far this week, according to IFR, a Thomson
Reuters unit.
    The U.S. Treasury Department will sell $56 billion in
coupon-bearing debt next week, starting with a $24 billion
auction in three-year notes on Tuesday.

    At 2:52 p.m. (1952 GMT), the benchmark 10-year Treasury
yield was up 2 basis point at 2.474 percent, within
striking distance of the nine-month peak of 2.504 percent set on
Dec. 21.
    The two-year yield, which is sensitive to
traders' views on Fed policy, edged up 0.4 basis point to 1.960
percent. On Thursday, it reached 1.976 percent which was the
highest since October 2008.
    In the futures market, federal funds contracts implied
traders priced in two rate hikes in 2018 with the next one
likely to occur in March. This was unchanged from
Thursday, CME Group's FedWatch tool showed.
January 5 Friday 3:02PM New York / 2002 GMT
 US T BONDS MAR8               151-26/32    -16/32    
 10YR TNotes MAR8              123-128/256  -6/32     
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.38         1.4038    0.000
 Six-month bills               1.555        1.5888    -0.005
 Two-year note                 99-214/256   1.9599    0.004
 Three-year note               99-124/256   2.0568    0.017
 Five-year note                99-64/256    2.2852    0.017
 Seven-year note               99-4/256     2.404     0.022
 10-year note                  98-12/256    2.4745    0.021
 30-year bond                  98-200/256   2.8105    0.024
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       51.30        1.55      
 30-year vs 5-year yield       52.40        0.75      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        18.50         0.00    
 U.S. 3-year dollar swap        18.50        -1.00    
 U.S. 5-year dollar swap         4.00        -0.25    
 U.S. 10-year dollar swap       -1.25         0.00    
 U.S. 30-year dollar swap      -20.75        -0.25    

 (Additional reporting by Kate Duguid; Editing by Chizu
Nomiyama, Lisa Von Ahn and Susan Thomas)
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