(Updates prices, adds 3-year auction) By Chuck Mikolajczak NEW YORK, Sept 7 - U.S. government bond yields rose for a second straight day on Tuesday, building on Friday's climb in the wake of the government's jobs report and ahead of this week's host of scheduled Treasury auctions. Data out Friday showed the fewest U.S. jobs created in seven months in August, although underlying measures were fairly strong, including a 0.6% wage increase that was double expectations. Other data within the report are likely to keep the Federal Reserve on track to taper its bond purchases by year-end. European yields also rose ahead of Thursday's European Central Bank meeting, with investors focused on any change to the pace of the ECB's pandemic emergency bond purchases (PEPP) during the fourth quarter. Investors await a flurry of supply this week, with auctions for the 10-year note and 30-year bond on Wednesday and Thursday, respectively, totaling $62 billion. "On the surface it looked negative but the bond market was able to look at the details and say as negative as the headline numbers might have been, if you look through it as the Fed probably will, it is probably not enough to stave off tapering into next year," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania. "And also knowing you would have supply coming up this week, both factors that had the most weight on pushing Treasury yields higher," Barnes added. Auctions of $56 billion in 3-month bills and $53 billion in 6-month bills were well bid, according to analysts, although the 8-week auction on Thursday is more likely to reflect the risk the market sees surrounding the possible expiration of the U.S. debt ceiling. A $58 billion sale of 3-year notes was also solid, said market participants. The 3-year yield was up 2.2 basis points at 0.429% The yield on 10-year Treasury notes was up 4.8 basis points at 1.370% after touching 1.385% shortly after the three-month and six-month auctions, its highest since July 14. Congressional debate is expected to heat up in coming weeks over the debt ceiling issue with Treasury due to run out of money in October. Without an extension to Treasury's borrowing limits, the risk of a technical default will weigh on short-term debt. The yield on 8-week bills was down 0.3 basis points at 0.071% after reaching 0.081%, the highest since March 15. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 114.6 basis points after hitting a high of 116.4, its steepest since July 14. Markets are also awaiting news on whether the White House will extend the tenure of Fed Chairman Jerome Powell, with a decision likely this week. September 7 Tuesday 3:13PM New York / 1913 GMT Price Current Net Yield % Change (bps) Three-month bills 0.04 0.0406 -0.005 Six-month bills 0.05 0.0507 -0.005 Two-year note 99-207/256 0.222 0.014 Three-year note 99-216/256 0.4286 0.022 Five-year note 99-168/256 0.8206 0.036 Seven-year note 99-234/256 1.1378 0.043 10-year note 98-228/256 1.3698 0.048 20-year bond 97-104/256 1.907 0.043 30-year bond 100-84/256 1.9854 0.043 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.75 0.25 spread U.S. 3-year dollar swap 11.75 0.25 spread U.S. 5-year dollar swap 8.50 -0.25 spread U.S. 10-year dollar swap 1.75 0.25 spread U.S. 30-year dollar swap -27.00 0.75 spread (Reporting by Chuck Mikolajczak; Editing by Will Dunham and Richard Chang)
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