October 4, 2017 / 6:58 PM / a year ago

TREASURIES-Yields flat to slightly higher ahead of U.S. payrolls data

    * U.S. ISM non-manufacturing index rises in September
    * U.S. private-sector payrolls top expectations
    * Focus on U.S. non-farm payrolls

 (Adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 4 (Reuters) - U.S. Treasury debt yields
drifted higher on Wednesday after a measure of U.S. services
sector activity hit a 12-year high, offsetting some concerns
about an upcoming payrolls report.
    Yields took off after data showed that the U.S.
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.
    U.S. long-dated yields, which move inversely to prices, hit
session highs after the data. But by mid-afternoon, yields came
off their peaks.
    "This could just be a little bit of a clean-up," said Tom
Simons, money market economist, at Jefferies in New York. "My
sense is that there are a lot of shorts out there, but there
wasn't enough selling to push yields a lot higher, so some guys
started to cover a little bit."
    Yields were lower for most of the morning session prior to
the ISM data, pulled down by uncertainty surrounding the
upcoming U.S. non-farm payrolls report. That data 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."
    Wall Street economists expect just 90,000 new U.S. jobs for
September, down from 156,000 in August, according to a Reuters
    Jefferies' Simons said many investors believed Friday's
payrolls would be distorted in some way by the hurricanes.
    "So I don't know if there are many folks out there looking
at this payrolls number for direction," he added. 
    A report by payrolls processor ADP on Wednesday 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 though was the smallest
monthly increase since October 2016.
    Aaron Kohli, rates strategist at BMO Capital Markets in New
York 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 late trading, the benchmark 10-year U.S. Treasury note
yield was at 2.333 percent, up from 2.332 percent
late on Tuesday, while the 30-year yield was at
2.877 percent, compared with Tuesday's 2.872 percent.
    U.S. two-year note yields were up slightly at
1.479 percent.
    October 4 Wednesday 2:49PM New York / 1849 GMT
 US T BONDS DEC7               152-18/32    -0-2/32   
 10YR TNotes DEC7              125-84/256   0         
                               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               99-80/256    1.6149    0.000
 Five-year note                99-194/256   1.9262    0.003
 Seven-year note               99-196/256   2.1613    0.002
 10-year note                  99-68/256    2.3337    0.002
 30-year bond                  97-116/256   2.8776    0.006
   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       -4.50         0.00    
 U.S. 30-year dollar swap      -32.75         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith
Mazzilli and Cynthia Osterman)
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