January 5, 2018 / 4:04 PM / a year ago

TREASURIES-U.S. yields rise modestly on December payroll data

    * 10-year yields up modestly from yesterday's close
    * Non-farm payrolls in Dec missed expectations, adding
148,000
    * Average hourly earnings rose 0.3 percent in Dec

 (Updates to add data, quote, further context and analysis)
    By Kate Duguid
    NEW YORK, Jan 5 (Reuters) - U.S. Treasury yields rose
modestly on Friday as the new tax cuts and a pickup in monthly
wage gains bolstered optimism about the country's economic
health even as data showed slower-than-expected job growth in
December. 
    Nonfarm payrolls increased by 148,000 last month, the Labor
Department announced Friday. The weak number was largely due to
distress in the retail sector, where jobs fell by 20,300 in
their largest drop since March.
    Yields on the U.S. benchmark 10-year bond, which is
considered an indicator of the market's long-term view of the
economy, initially fell after the news but stabilized at rates
just above Thursday's close. 
    "The market is shrugging it off because it's not weak enough
to detract the Fed from raising rates further," said Bryce Doty,
senior portfolio manager at Sit Fixed Income Advisors LLC in
Minneapolis. "The modest rise in the average hourly wage number
should give the Fed some breathing room." 
    Accelerating monthly wage gains pointed to labor market
strength that could pave the way for the Federal Reserve to
increase interest rates in March.
    Average hourly earnings rose 9 cents, or 0.3 percent, in
December after gaining 0.1 percent in the prior month. That
lifted the annual increase in wages to 2.5 percent from 2.4
percent in November. 
    December's payrolls number is further evidence of slowing
job growth as the economy approaches full employment. But the
$1.5 trillion package of tax cuts signed into law by President
Donald Trump last month may boost job growth. 
    The anticipated fiscal stimulus from a reduction of the
corporate income tax rate to 21 percent from 35 percent helped
buoy yields.  
    In midmorning trading, the yield on U.S. 10-year government
notes was 2.456 percent, up from Thursday's close of
2.453 percent. The yield on two-year notes was little
changed at 1.964 percent, just off the nine-year high set on
Thursday. 

      January 5 Friday 10:17AM New York / 1517 GMT
                               Price                  
 US T BONDS MAR8               152-12/32    0-2/32    
 10YR TNotes MAR8              123-176/256  0-4/256   
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 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               99-130/256   2.0485    0.009
 Five-year note                99-86/256    2.2668    -0.001
 Seven-year note               99-40/256    2.3819    0.000
 10-year note                  98-60/256    2.4527    0.000
 30-year bond                  99-60/256    2.7879    0.002
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.25        -0.25    
 spread                                               
 U.S. 3-year dollar swap        18.50        -1.00    
 spread                                               
 U.S. 5-year dollar swap         4.75         0.50    
 spread                                               
 U.S. 10-year dollar swap       -0.75         0.50    
 spread                                               
 U.S. 30-year dollar swap      -20.00         0.50    
 spread                                               
 
 (Reporting by Kate Duguid; Editing by Chizu Nomiyama and Lisa
Von Ahn)
  
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