November 30, 2016 / 8:05 PM / 3 years ago

TREASURIES-Yields rise as oil deal boosts inflation expectations

(Adds comments by Trump's nominee for treasury secretary,
paragraphs 8,10; updates prices)
    * OPEC deal boosts inflation expectations
    * Mnuchin comments on stimulus, debt adds to weakness
    * Friday's jobs report in focus

    By Karen Brettell
    NEW YORK, Nov 30 (Reuters) - U.S. Treasury yields rose on
Wednesday as the Organization of the Petroleum Exporting
Countries (OPEC) agreed to its first output cuts since 2008,
sending oil prices more than 8 percent higher and boosting
expectations of higher inflation.
    OPEC agreed on a proposal by member Algeria to reduce
production by around 4.5 percent, or about 1.2 million barrels
per day. 
    "Most of the move ... was related to the OPEC news," said
Thomas Simons, a money market economist at Jefferies in New
    Benchmark 10-year notes dropped 17/32 in price
to yield 2.36 percent, up from 2.30 percent on Tuesday.
    Thirty-year bonds, which are most sensitive to
inflation eroding their value, tumbled 1-1/12 in price to yield
3.02 percent, up from 2.95 percent on Tuesday.
    Expectations of higher government stimulus added to bond
    U.S. bond yields have soared since the surprise election of
Donald Trump as president on Nov. 8 as investors bet that he
will enact policies that increase spending and debt as well as
spur growth and inflation.
    Steven Mnuchin, Trump's nominee to run the Treasury
Department, said on Wednesday the administration would make tax
reform and trade pact overhauls top priorities as they seek a
sustained pace of 3 percent to 4 percent economic growth.
    "The market hasn't been priced for any of this. It wasn't
priced for the Trump election, it wasn't priced for fiscal
stimulus. Now the market's trying to figure out what it needs to
discount in order for that to happen," said Tom Tucci, head of
Treasuries trading at CIBC in New York.
    Mnuchin also said that will explore issuing debt maturing in
more than 30-years to cushion the effect of rising rates, adding
to pressure at the long-end of the Treasury yield curve.
    The average maturity of U.S. Treasury debt has already been
growing. As of the end of September, it stood at 70 months, the
highest since 2001, and up from a low of 49 months during the
financial crisis.
    By some estimates, the average maturity of Treasuries
outstanding was already on course to grow to 80 months or more
by the mid-2020s.
    Data on Wednesday showed that U.S. private employers stepped
up hiring in November and consumer spending increased last month
    Friday's employment report for November is expected to show
that employers added 175,000 jobs during the month, according to
the median of 100 economists polled by Reuters. 

 (Additional reporting by Dan Burns; Editing by Lisa Von Ahn and
Grant McCool)
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