September 4, 2018 / 6:32 PM / in 2 months

TREASURIES-Yields rise on strong U.S. manufacturing data, corporate debt supply

(Adds data, quote, updates prices)

* Corporate debt hedging sends yields higher

* Manufacturing survey highest since 2004

* Friday’s U.S. jobs data in focus

By Karen Brettell

NEW YORK, Sept 4 (Reuters) - U.S. Treasury yields rose to three week highs on Tuesday after data showed that U.S. manufacturing activity accelerated to a more than 14-year high in August, and on heavy corporate debt supply.

The Institute for Supply Management (ISM) said its index of national factory activity jumped to 61.3 last month, the best reading since May 2004 and up from 58.1 in July.

Companies including Caterpillar and Pfizer Inc. , meanwhile, are issuing debt sales this week, with September typically being among the most popular months for corporate debt issuance.

“The ISM index was very, very strong, it was the second highest on record. That certainly contributed (to the yield increase) but I think it got started by the heavy corporate calendar that we have this week,” said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.

Benchmark 10-year notes fell 14/32 in price to yield 2.902 percent, up from 2.853 percent on Friday. They earlier rose to 2.906 percent, the highest since Aug. 10.

The yield curve between two-year and 10-year notes steepened to 24 basis points, from 23 basis points.

The Treasury market was closed on Monday for the Labor Day holiday.

U.S. jobs data for August on Friday is this week’s major economic focus and will be evaluated for further indications on the strength of the labor market and wage pressures.

The jobs report is seen as unlikely to sway the Federal Reserve from raising interest rates this month for the third time this year. Futures traders are pricing in a 98 percent chance of a rate hike at the conclusion of the U.S. central bank’s Sept. 25-26 meeting.

The odds of an additional hike in December rose to 73 percent on Tuesday, up from 71 percent before the ISM data, according to the CME Group’s FedWatch Tool.

Investors are also focused on trade tensions with China and Canada this week.

U.S. President Donald Trump is prepared to quickly ramp up a trade war with China and has told aides he is ready to impose tariffs on $200 billion more in Chinese imports as soon as a public comment period on the plan ends this week, Bloomberg News reported last week.

Contentious U.S.-Canada trade talks are set to resume on Wednesday, after ending on Friday with no deal to revamp the North American Free Trade Agreement. (Reporting by Karen Brettell; Editing by Andrea Ricci and Rosalba O’Brien) )

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