October 4, 2017 / 2:53 PM / a year ago

TREASURIES-Yields advance after strong U.S. services sector data

 (Recasts, adds comments, byline, updates prices)
    * U.S. ISM non-manufacturing index rises in September
    * U.S. private-sector payrolls top expectations
    * Focus on U.S. non-farm payrolls

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 4 (Reuters) - U.S. Treasury debt yields rose
on Wednesday after a measure of U.S. services sector activity
hit a 12-year high, offseting some concerns about an upcoming
payrolls report.
    U.S. long-dated yields, which move inversely to prices, hit
session highs after the data.
    The non-manufacturing index as measured by the Institute for
Supply Management rose to 59.8 last month from 55.3 in August.
The consensus expectation was for a reading of 55.5.

    "The surge in the ISM non-manufacturing index is a clear
sign that the economy is recovering quickly from any
hurricane-related disruption and that the underlying pace of
(gross domestic product) growth remains strong," said Michael
Pearce, U.S. economist, at Capital Economics in New York.
    Yields were lower for most of the session, weighed by
uncertainty surrounding the upcoming U.S. non-farm payrolls
report, which was expected to reflect hurricanes that hit the
United States last month.
    "The level of uncertainty surrounding payrolls has been
high," said Bruno Braizinha, interest rates strategist at
Societe Generale in New York. 
    "Economists find it hard to understand the effects of the
hurricane on payrolls. Our economists actually think that
hurricanes will weigh significantly on payrolls," he added.
    Wall Street economists expect just 90,000 new U.S. jobs for
September, down from 156,000 in August, according to a Reuters
    A report by payrolls processor ADP showed that U.S. private
employers added 135,000 jobs in September, exceeding economists'
expectations despite Hurricanes Harvey and Irma significantly
impacting smaller retailers.
    The jobs gain reported by ADP was the smallest monthly
increase since October 2016.
    "The details showed relatively broad health with most
employers adding (jobs) with the exception of very small
businesses," said Aaron Kohli, rates strategist at BMO Capital
Markets in New York.
     But Kohli pointed out that it is difficult to determine
what the ADP number implies about Friday's jobs report.
    "The on-consensus (ADP) read leaves the market still
expecting a soft non-farm payrolls due to hurricane effects," he
    In mid-morning trading, the benchmark 10-year U.S. Treasury
note yield was at 2.339 percent, up from 2.332
percent late on Tuesday, while the 30-year yield was
at 2.886 percent, compared with Tuesday's 2.872 percent.
    U.S. two-year note yields were up slightly at
1.479 percent.

      October 4 Wednesday 10:27AM New York / 1427 GMT
 US T BONDS DEC7               152-13/32    -0-7/32   
 10YR TNotes DEC7              125-72/256   -0-12/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.0525       1.07      0.008
 Six-month bills               1.1925       1.2164    0.005
 Two-year note                 99-204/256   1.4791    0.004
 Three-year note               99-78/256    1.6176    0.003
 Five-year note                99-190/256   1.9295    0.007
 Seven-year note               99-188/256   2.1661    0.007
 10-year note                  99-60/256    2.3372    0.005
 30-year bond                  97-88/256    2.8832    0.011
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.75         0.75    
 U.S. 3-year dollar swap        23.75         0.75    
 U.S. 5-year dollar swap         8.00         0.25    
 U.S. 10-year dollar swap       -4.25         0.25    
 U.S. 30-year dollar swap      -32.50         0.25    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith
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