December 7, 2018 / 3:50 PM / 6 months ago

TREASURIES-U.S. yield curve steepens on hopes for rate-hike pause

    * Weaker-than-expected jobs data boost view on slower U.S.
    * Rates futures imply traders see one U.S. rate hike in 2019
    * U.S. 10-year yield on track to fall for five straight

 (Updates market action, adds quote, table)
    By Richard Leong
    NEW YORK, Dec 7 (Reuters) - The margin between short- and
long-end U.S. Treasury yields grew on Friday as
weaker-than-expected data on domestic jobs growth in November
bolstered the view the Federal Reserve may tap the brakes on
raising interest rates sooner than previously thought.
    Bets that the end of the U.S. central bank's rate-hike
campaign is on the horizon and a rally in oil prices after an
OPEC deal to reduce output briefly kindled appetite for stocks
and other risky assets, reducing demand for safe-haven U.S.
government debt, analysts said.
    Bond yields have fallen over the past month on worries about
slowing global growth and declining oil prices. Fears about the
Brexit negotiation and trade tension between China and the
United States had stoked safety bids for Treasuries.
    "It builds the case for a deceleration for hiking next
year," Ed Al-Hussainy, global rates and currency strategist at
Columbia Threadneedle Investments in Minneapolis, said of the
latest payrolls report.
    Earlier Friday, the U.S. Labor Department said public and
private employers hired 155,000 workers in November, fewer than
the 200,000 forecast by economists polled by Reuters, while the
jobless rate held at a 49-year low of 3.7 percent.
    Wage growth remained modest, raising 0.2 percent last month.
    At 10:32 a.m. (1532 GMT), the benchmark 10-year Treasury
yield was up 2 basis points at 2.895 percent. On
Thursday, it touched 2.866 percent, a three-month low.
    The 10-year yield was on track to fall for a fifth straight
week, which would be the longest such stretch since seven weeks
of decline between May and July 2016, Refinitiv data showed.
    The two-year yield was down marginally at 2.754
percent, leaving its weekly fall at 5 basis points.
    The entire yield curve steepened, with the spread between
two-year and 10-year yields widening 2 basis points to 14 basis
    The front half of the yield curve remained inverted after
two-year and three-year yields rose above five-year yields for
the first time in over a decade earlier this week.
    This market phenomenon has stoked speculation as to whether
a U.S. recession is looming. 
    Interest rates futures suggested traders saw a 78 percent
chance the Fed would raise rates by a quarter point to 2.25-2.50
percent at its Dec. 18-19 meeting, up from 71 percent on
Thursday, CME Group's FedWatch showed.
    Futures prices implied traders expected little chance of
more than one rate hike in 2019.
    Back in September, Fed policymakers on average had projected
three rate increases for next year.
December 7 Friday 10:33AM New York / 1533 GMT
 US T BONDS MAR9               142-19/32    -19/32    
 10YR TNotes MAR9              120-92/256   -2/32     
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.3575       2.4039    -0.006
 Six-month bills               2.48         2.5457    -0.005
 Two-year note                 99-254/256   2.7538    -0.004
 Three-year note               100-78/256   2.7656    0.000
 Five-year note                100-154/256  2.7446    -0.003
 Seven-year note               100-100/256  2.8128    0.010
 10-year note                  101-248/256  2.8953    0.019
 30-year bond                  103-188/256  3.1806    0.045
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       14.00        0.65      
 30-year vs 5-year yield       43.50        2.75      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        15.50        -1.00    
 U.S. 3-year dollar swap        12.25        -1.50    
 U.S. 5-year dollar swap        12.50        -0.75    
 U.S. 10-year dollar swap        5.75        -1.00    
 U.S. 30-year dollar swap      -13.50        -1.50    

 (Reporting by Richard Leong
Editing by Chizu Nomiyama and Dan Grebler)
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