October 3, 2018 / 8:59 PM / 8 months ago

TREASURIES-Long-date yields jump on strong economy, Fed hawkishness

 (Recasts headline, lead, adds analyst quote, updates table,
    By Kate Duguid
    NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields reached
multiyear peaks, with the 10-year yield at its highest since
2011 after economic data on Wednesday bolstered the case for the
Federal Reserve to raise rates in December and beyond.
    The yield on the benchmark 10-year note made 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 and suggest the
central bank's tightening policy is unlikely to end anytime
soon. The Fed increased rates last week for the third time this
year. Yields were on the move again late on Wednesday following
a speech by Powell in which he said the U.S. economy can expand
for "quite some time."
    Early on Wednesday, Fed policy maker Charles Evans, who is
among the decision-making committee's most dovish members,
indicated he backed a December rate hike, saying the likely path
higher for U.S. rates seemed "about as clear as you could write
up," at present.
    At the long end of the curve, the 30-year yield
rose more than 12.5 basis points to 3.342 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 3.183
percent, the highest since June 2011.   
    Technical factors also contributed to the rise in 10- and
30-year yields. Traders were positioned to automatically sell
off at certain "stops" determined by previous highs. "Stop
losses could have been triggered as you approached and broke
those levels and that could add fuel to the move that's already
in place," said Brian Daingerfield, macro strategist, NatWest
    The yield on the 2-year note, which reflects
market  expectations of interest rate hikes, rose to 2.876
percent, its highest since June 2008, when it topped 3 percent.
Yields on the 3- and 5-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. 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.
    October 3 Wednesday 4:51PM New York / 2051 GMT
 US T BONDS DEC8               138-5/32     -2-11/32  
 10YR TNotes DEC8              117-244/256  -0-220/2  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.18         2.2225    0.000
 Six-month bills               2.3525       2.4139    0.011
 Two-year note                 99-194/256   2.876     0.061
 Three-year note               99-102/256   2.9643    0.084
 Five-year note                99-58/256    3.0432    0.100
 Seven-year note               99-48/256    3.1303    0.118
 10-year note                  97-104/256   3.1832    0.127
 30-year bond                  93-168/256   3.3371    0.130
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        16.50        -0.50    
 U.S. 3-year dollar swap        14.75        -1.00    
 U.S. 5-year dollar swap        10.75        -0.75    
 U.S. 10-year dollar swap        4.25        -1.00    
 U.S. 30-year dollar swap       -9.50        -1.25    

 (Reporting by Kate Duguid; 
Editing by David Gregorio and Jonathan Oatis)
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