January 3, 2018 / 9:11 PM / a year ago

TREASURIES-U.S. yields flat as FOMC minutes support gradual rate-hike view

    * Treasury yields hold at lower levels following Dec FOMC
    * Fed sees future rate rises guided by inflation, fiscal
    * U.S. Dec ISM manufacturing data beat expectations
    * U.S. 2-year yield touches 9-year peak

    By Kate Duguid
    NEW YORK, Jan 3 (Reuters) - U.S. Treasury yields were little
changed on Wednesday as traders stuck to their view that the
Federal Reserve would gradually increase interest rates in 2018
based on the minutes of the central bank's December policy
     Fed policy-makers showed worry over the fate of currently
low inflation and saw recent tax changes as providing a boost to
consumer spending, according to the minutes of the U.S. central
bank's last policy meeting on Dec. 12-13 released on Wednesday.
    The details of the meeting, at which the Fed raised interest
rates for the fifth time since the 2008 financial crisis, also
showed that officials may be less certain about the impact of
fiscal stimulus on raising inflation rates than investors had
    "I think people had taken the two dissents and the lack of a
firmer policy path to suggest that there had been an increased
number of participants worried about the lack of inflation or
the lack of wage growth with declining unemployment, and I don’t
really see that," said Michael Gapen, chief U.S. economist at
Barclays in New York.  
    Bond markets around the world stabilized from Tuesday's
selloff tied to hawkish comments from two European Central Bank
officials, which propelled the 10-year German Bund yield to a
two-month peak and the five-year U.S. yield
 to its highest level since April 2011.
    Some investors said Tuesday's yield rise was partly a
reversal of the drop linked to typical year-end buying.
    A stronger-than-forecast report on U.S. manufacturing from
the Institute for Supply Management at 10:00 a.m. EST (1500 GMT)
briefly raised yields by 2 basis points, but those gains were
erased by day-end.
    The industry group's index on U.S. factory activity
unexpectedly rose to 59.7 last month from 58.2 in November.
Analysts polled by Reuters forecast the ISM factory index likely
came in at 58.1.
    Evidence of further expansion in the factory sector will
likely support the notion of steady U.S. economic growth,
perhaps allowing the Fed to increase rates up to three times in
    The market's relatively muted reaction, however, indicated
investors may not be convinced the strong data will push up
inflation rates.     
    At 3:34 p.m. (2034 GMT), the benchmark 10-year Treasury
yield was down 1.8 basis points at 2.447 percent,
while the 30-year yield was down 2.5 basis points at
2.785 percent, both compared to Tuesday's close. 
    The two-year yield reached a nine-year high at
1.939 percent. It was last down 0.8 basis point at 1.931
January 3 Wednesday 3:40PM New York / 2040 GMT
 US T BONDS MAR8               152-8/32     0-16/32   
 10YR TNotes MAR8              123-200/256  0-24/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.3775       1.4015    -0.046
 Six-month bills               1.5575       1.5917    -0.018
 Two-year note                 99-226/256   1.9353    0.012
 Three-year note               99-154/256   2.0148    0.000
 Five-year note                99-110/256   2.2465    -0.003
 Seven-year note               99-62/256    2.3683    -0.014
 10-year note                  98-72/256    2.4471    -0.018
 30-year bond                  99-76/256    2.7847    -0.025
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        17.75        -0.50    
 U.S. 3-year dollar swap        18.50         0.00    
 U.S. 5-year dollar swap         3.50         0.25    
 U.S. 10-year dollar swap       -1.75         0.50    
 U.S. 30-year dollar swap      -20.75         0.75    
 (Reporting by Richard Leong and Kate Duguid; Editing by David
Gregorio, Nick Zieminski and Susan Thomas)
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