October 3, 2018 / 10:14 PM / a month ago

TREASURIES-Upbeat data propel U.S. yields to multi-year highs

    * ISM U.S. services activity index records 21-year high
    * U.S. companies add 230,000 workers in Sept, most since
February
    * Fed's Powell sees ongoing U.S. growth for "quite some
time"  
    * U.S. yield curve moves to steepest in two months

 (Adds move on yield curve, table)
    By Kate Duguid
    NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields jumped to
multi-year peaks on Wednesday, with the 10-year yield reaching a
seven-year high after economic data bolstered the case for the
Federal Reserve to raise interest rates again 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 ADP private payrolls data for September came in
stronger than expected.
    Wednesday's market rout was compounded by technical selling
when major yield levels were breached, analysts said.
    “As we break to new multi-year highs, it is the question on
the mind of the market - whether this is the beginning of a
massive shift higher," said Brian Daingerfield, macro strategist
at NatWest Markets in Stamford, Connecticut.
    The upbeat reports on Wednesday are likely to keep the Fed
on track to raise rates again in December and suggest the U.S. 
central bank's tightening policy is unlikely to end any time
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 Fed Chairman Jerome Powell in which he said the U.S.
economy can expand for "quite some time."
    Late Wednesday, Powell said the Fed may raise rates above an
estimated "neutral" setting as the "remarkably positive" U.S.
economy continues to grow. His remarks touched off a late round
of bond selling, pushing longer-dated yields back to their
earlier highs.
    At the long end of the curve, the 30-year bond yield
 rose more than 12.5 basis points to 3.342 percent,
its highest since September 2014. Benchmark 10-year government
note 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.
    The jump in longer-dated yields steepened the curve. The
spread between two- and 10-year yields grew to
30.50 basis points, the widest in two months.
    Technical factors also contributed to the rise in 10- and
30-year yields. Traders may have positioned to automatically
sell at certain pre-determined yield levels.
    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,
respectively.   
    The Institute for Supply Management said its
non-manufacturing activity index jumped last month to its
highest 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 5:56PM New York / 2156 GMT
                               Price                  
 US T BONDS DEC8               138-16/32    0/32      
 10YR TNotes DEC8              118-32/256   0/32      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 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                99-60/256    3.0415    0.099
 Seven-year note               99-52/256    3.1278    0.116
 10-year note                  97-108/256   3.1813    0.125
 30-year bond                  93-172/256   3.3362    0.129
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       30.50        5.70      
 30-year vs 5-year yield       28.80        2.40      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.25        -0.75    
 spread                                               
 U.S. 3-year dollar swap        14.50        -1.25    
 spread                                               
 U.S. 5-year dollar swap        10.75        -0.75    
 spread                                               
 U.S. 10-year dollar swap        4.25        -1.00    
 spread                                               
 U.S. 30-year dollar swap       -9.25        -1.00    
 spread                                               
 
 (Additional reporting by Richard Leong and Jonathan Spicer; 
Editing by Jonathan Oatis and James Dalgleish)
  
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