(Adds quote, economic details and updates prices)
* Investors take profits from flattening trades
* Payrolls report next Friday next main focus
* Fed buys $1.15 bln bonds due 2036-2044
By Karen Brettell
NEW YORK, March 28 U.S. Treasuries yields rose
on Friday as stocks gained, with yields of intermediate-dated
notes nearing two-month highs as many analysts and traders see
the debt as likely to continue to underperform longer-term
Two-year, three-year, five-year and seven-year notes have
underperformed since Federal Reserve Chair Janet Yellen said
last week that the U.S. central bank could raise interest rates
six months after its bond-buying program ends, suggesting a
potential rate hike as early as spring 2015.
Economic releases due out next week, culminating in Friday's
employment report for March, are being awaited for signs on the
strength of the economy and whether recent weakness was
"Next week is an important week because we get the first
look at the data for March," said Gary Pollack, head of
fixed-income trading at Deutsche Bank Private Wealth Management
in New York. "There is a big debate about the economy and how
much of the weakness we've seen in the first quarter is weather
related and how much is not."
Employers are expected to have added 195,000 jobs in March,
according to the median estimate of economists polled by
Traders this week have taken some profits from flattening
trades that benefited from weakness in intermediate-dated notes
after Yellen's comments.
Investors closing out these trades likely helped the
Treasury sell $96 billion in new short- and intermediate-dated
debt this week.
"If the Fed is going to hike it's going to be the belly of
the curve that takes the brunt of the pain as we get closer to
actual hikes," said Ira Jersey, an interest rate strategist at
Credit Suisse in New York.
Many investors are still positioned for further weakness in
the notes, and the yield curve is seen likely to resume the
recent flattening trend. Traders said the unwinding of some
steepening trades contributed to recent flattening.
"The market seems to be leaning short ... the yield curve
has flattened a lot, but it's still relatively steep," Jersey
Five-year note yields were last at 1.74 percent,
down from a two-month high of 1.77 percent on Monday. The yields
have increased from around 1.54 percent before Yellen's
Thirty-year bonds yielded 3.55 percent, after
falling to 3.49 percent on Thursday, the lowest level since
The spread between the yield on five-year notes and 30-year
bonds traded at 181 basis points on Friday, after
getting as tight as 179 basis points on Thursday, the flattest
Bonds had little reaction to data that showed that U.S.
consumer spending rose in February.
Separately, U.S. consumer sentiment fell in March as
consumers were less hopeful about the prospects for the overall
economy, a survey released on Friday showed.
The president of the Chicago Federal Reserve Bank, Charles
Evans, said on Friday that the Fed will need to keep rates at
rock bottom until late 2015 and then increase them only
moderately over the next year because the Fed would otherwise
risk derailing a building economic recovery.
The Fed bought $1.15 billion in bonds due from 2036 to 2044
on Friday as part of its ongoing purchase program.
(Editing by Chizu Nomiyama and Leslie Adler)