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TREASURIES-Yields extend surge as oil, Trump boost inflation bets
December 1, 2016 / 4:25 PM / a year ago

TREASURIES-Yields extend surge as oil, Trump boost inflation bets

* 10-yr yields hit 16-1/2-month high of 2.468 pct
    * 30-yr yields hit over 1-yr high of 3.132 pct
    * Rally in oil prices, Trump policies boost inflation
expectations
    * U.S. economic data pushes most yields to session highs

    By Sam Forgione
    NEW YORK, Dec 1 (Reuters) - U.S. Treasury yields surged on
Thursday with benchmark yields touching their highest levels in
just under a year and a half on expectations that gains in oil
prices and U.S. President-elect Donald Trump's policies would
fuel higher inflation.
    Brent crude prices built on Wednesday's gains with a more
than 3 percent jump a day after OPEC and Russia agreed to
restrict output. The rally in crude, along with expectations
that Trump will enact policies that increase spending and debt
as well as spur growth and inflation, pushed up Treasury yields.
 
    Inflation erodes bond prices, with 10- and 30-year
Treasuries most vulnerable. Yields rose overnight and extended
their surge in U.S. trading, with a stronger-than-expected U.S.
manufacturing reading for November and a rise in U.S.
construction spending in October briefly pushing yields on
Treasuries maturing between three and 30 years to their session
highs.  
    "You're seeing the market pricing in higher inflation in the
near term," said Gennadiy Goldberg, interest rate strategist at
TD Securities in New York.
    Benchmark 10-year yields hit a 16-1/2-month high of 2.468
percent, while 30-year yields hit a more than one-year high of
3.132 percent. U.S. five-year yields hit a more than 5-1/2-year
high of 1.92 percent, while seven-year yields hit a more than
two-year high of 2.274 percent. 
    U.S. two- and three-year yields hit six-day highs of 1.151
percent and 1.456 percent, respectively. 
    Comments from Steven Mnuchin, who Trump said he would
nominate to lead the U.S. Treasury, on introducing a
longer-maturity bond on Wednesday added to expectations that
long-end rates would increase further, said Kim Rupert, managing
director for fixed income at Action Economics in San Francisco.
    The continued surge in yields came after U.S. Treasuries
posted a negative 2.7 percent return in November to mark their
worst performance since January 2009, according to Bloomberg
Barclays index data, while the Bloomberg Barclays U.S. Aggregate
Bond Index posted a negative 2.4 percent return to mark its
worst monthly showing in at least 10 years.
    Traders are awaiting U.S. monthly employment data due
Friday. Economists polled by Reuters expect U.S. employers to
have added 175,000 jobs last month, up from 161,000 in October. 
    U.S. 10-year Treasuries were last down 22/32 in
price to yield 2.4463 percent, up about eight basis points from
its yield late on Wednesday of 2.367 percent. U.S. 30-year
Treasuries were last down 1-21/32 in price to yield
3.105 percent, up about nine basis points from late Wednesday's
yield. Prices on 30-year Treasuries briefly fell below two full
points. 

      Dec. 1 Thursday 10:57AM New York / 1557 GMT
                               Price                  
 US T BONDS DEC6               150-29/32    -1-24/32  
 10YR TNotes DEC6              124-212/256  -0-104/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.48         0.4873    0.002
 Six-month bills               0.6025       0.6127    0.003
 Two-year note                 99-188/256   1.135     0.020
 Three-year note               98-194/256   1.4311    0.041
 Five-year note                99-94/256    1.8833    0.049
 Seven-year note               99-72/256    2.2366    0.059
 10-year note                  96-44/256    2.4354    0.068
 30-year bond                  95-160/256   3.1002    0.082
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        20.50         0.25    
 spread                                               
 U.S. 3-year dollar swap        12.00        -0.50    
 spread                                               
 U.S. 5-year dollar swap        -2.50         0.25    
 spread                                               
 U.S. 10-year dollar swap      -16.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -55.25        -1.00    
 spread                                               
 
 (Reporting by Sam Forgione; Editing by Bill Trott)

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