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TREASURIES-Yields edge higher after U.S. GDP data supports Fed rate hike bets
November 29, 2016 / 4:02 PM / a year ago

TREASURIES-Yields edge higher after U.S. GDP data supports Fed rate hike bets

* U.S. second Q3 GDP estimate shows annual rate gain of 3.2
pct
    * Data bolsters bets on swifter pace of Fed rate hikes
    * Month-end buying, uncertainty keep yields range-bound

    By Sam Forgione
    NEW YORK, Nov 29 (Reuters) - U.S. Treasury yields inched
higher on Tuesday after stronger-than-expected U.S. gross
domestic product data supported expectations for a faster pace
of Federal Reserve rate increases next year, while month-end
buying and uncertainty ahead of key events limited the rise. 
    Gross domestic product increased at a 3.2 percent annual
rate instead of the previously reported 2.9 percent pace, the
Commerce Department said in its second estimate for the quarter.
Growth was the strongest since the third quarter of 2014 and
followed the second quarter's anemic 1.4 percent pace.
 
    After the data, federal funds futures implied traders saw a
98 percent chance that the Fed would raise rates at its Dec.
13-14 meeting, compared with a 94 percent chance late on Monday,
according to CME Group's FedWatch program.
    "The economic data came in better than expected, which
further raises the probability of the Fed to tighten in December
and further into 2017," said Stan Shipley, bond strategist at
Evercore ISI in New York.
    The move was modest, however, with yields remaining below
multimonth or multiyear highs touched last week. Analysts said
demand for U.S. government bonds, which typically kicks in
toward the end of the month as investors seek to rebalance their
portfolios, was keeping yields anchored. 
    They also said uncertainty over U.S. President-elect Donald
Trump's policies, as well as Italy's referendum on
constitutional reform on Sunday and the outcome of Wednesday's
meeting of the Organization of the Petroleum Exporting
Countries, were also keeping activity muted. 
    Traders were also awaiting Friday's U.S. November employment
report. Economists polled by Reuters expect U.S. employers to
have added 175,000 jobs this month. 
    Benchmark 10-year U.S. Treasury notes were last
down 4/32 in price, with yields rising to 2.3358 percent from
2.320 percent late Monday. 
    Two-year notes, which are most sensitive to
interest rate increases, were last roughly flat to yield 1.1149
percent, compared with 1.111 percent late Monday. 
    Benchmark yields hit a 16-month high of 2.417 percent on
Wednesday, while the two-year's reached a 6-1/2-year high of
1.17 percent on Friday, largely on bets that Trump will adopt
policies that increase spending and debt as well as spur growth
and inflation. Those policies would likely erode the value of
U.S. bonds.
    "This is basically a bit of a consolidation period," with
yields remaining within recent ranges, said Praveen Korapaty,
head of U.S. rates at Credit Suisse in New York.
    
    November 29 Tuesday 10:30AM New York / 1530 GMT
                               Price                  
 US T BONDS DEC6               153-16/32    -0-6/32   
 10YR TNotes DEC6              125-116/256  -0-48/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.4825       0.4898    -0.002
 Six-month bills               0.5975       0.6076    -0.002
 Two-year note                 99-198/256   1.1149    0.004
 Three-year note               98-228/256   1.384     0.014
 Five-year note                99-168/256   1.8222    0.021
 Seven-year note               99-212/256   2.1516    0.020
 10-year note                  97           2.3394    0.019
 30-year bond                  97-224/256   2.9827    0.001
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.00         0.00    
 spread                                               
 U.S. 3-year dollar swap        12.25        -0.25    
 spread                                               
 U.S. 5-year dollar swap        -3.25        -1.00    
 spread                                               
 U.S. 10-year dollar swap      -17.50        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -56.00         0.00    
 spread                                               
 
 (Reporting by Sam Forgione; Editing by Lisa Von Ahn)

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