TREASURIES-U.S. yields hit their highest since April

LONDON Mon Feb 4, 2013 4:31am EST

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LONDON Feb 4 (Reuters) - U.S. Treasury yields hit their highest levels in over nine months on Monday and traders said borrowing costs had further room to rise as markets readjust to a more healthy economic outlook after recent data.

* Ten-year U.S. Treasury yields hit their highest since April last year at 2.059 percent, up 3.4 basis points on the day.

* Debt prices continued to be under pressure after data on Friday pointed to steady economic growth, showing job growth and improved manufacturing.

* Investors will look at orders for factory goods due on Monday and at data on the vast U.S. services sector on Tuesday for further signs that the world's largest economy is on the mend.

* "From here, the question becomes how much further down do we go? I think (yields) could conceivably move to 2.20 (percent) on 10-year notes," the trader said. "This is just a repricing of the safe-haven bid."

* "At the moment, I think we will continue to see lower bond prices," he added.

* Five-year U.S. Treasury yields rose 2.7 basis points to 0.92 percent, while 30-year borrowing costs were up 2 bps at 3.25 percent.

* Philip Marey, strategist at Rabobank, expected 10-year yields to be stuck in a 1.90 to 2.10 percent range as a looming fiscal problem limits the scope for a sell-off.

* Obama and lawmakers were able to avoid a year end "fiscal cliff" of deep automatic spending cuts known as the sequester and tax increases at the end of 2012. Republicans agreed to extend temporarily the U.S. capacity to borrow without demanding spending cuts in return.

* However the two sides still face the prospect of painful across-the-board spending cuts in a month if they do nothing - a prospect Marey said could continue to give safe-haven Treasuries underlying support.

* "There are still some budget battles to be fought," Marey said. "That will keep markets on edge and will keep business investment somewhat muted." (Reporting by Ana Nicolaci da Costa/editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)

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