January 19, 2018 / 8:02 PM / a year ago

TREASURIES-Benchmark yields hit 3-year peak as government shutdown looms

 (Updates quotes, prices and news throughout)
    * 10-year yields hit highest level since September 2014
    * Deadline for U.S. government funding bill approaching

    By Kate Duguid
    NEW YORK, Jan 19 (Reuters) - Yields on the 10-year U.S.
government note hit a three-year high on Friday as weakness in
overnight trading led the debt to test key technical support
levels, before the higher yields attracted new buyers.
    "This is one of those times when the price action is
deciding further price action," said Michael Lorizio, senior
fixed income trader at Manulife Asset Management in Boston.
    The higher yields "probably brought in enough buying
interest to cause a little bit of a reversal, but not enough,"
Lorizio added, noting yields were holding just below Friday's
earlier high.
    The benchmark 10-year yield hit its highest
level since September 2014 on Friday, at 2.646 percent, breaking
the 2017 record of 2.64 percent which the market had been
flirting with all week.
    Some analysts had doubts that yields would break through
that barrier. "I think the market's getting ahead of itself,"
said Justin Hoogendoorn, head of fixed income strategy at Piper
Jaffray & Co in Chicago.  
    A strong equity market and increasing expectations of
inflation have sent 10-year yields higher this week. But that
pressure may be short-lived.
    "I think the run-up in commodities has played a big role in
increasing inflation expectations," Hoogendoorn said. Brent
crude futures on Monday hit their highest level since
December 2014, at $70.37, before falling to $68.55 on Friday.

    Analysts said news about the potential U.S. government
shutdown was not influencing the market.
    "History tells us that it doesn't have a major economic
impact on a longer-term basis," Lorizio said. 
    The U.S. Senate was racing to avert a government shutdown on
Friday ahead of a midnight deadline with no agreement on funding
in sight and both parties squabbling over who is to blame for
the impasse.
    At 2:18 p.m. (1918 GMT), 10-year Treasury yields were at
2.635 percent. The two-year's were at 2.056 percent
after hitting 2.065 percent earlier in the day, the highest
level since September 2008.
    January 19 Friday 2:29PM New York / 1929 GMT
 US T BONDS MAR8               149          -0-14/32  
 10YR TNotes MAR8              122-72/256   -0-44/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.4075       1.4319    -0.008
 Six-month bills               1.59         1.6249    -0.008
 Two-year note                 99-168/256   2.0564    0.013
 Three-year note               99-116/256   2.1905    0.023
 Five-year note                98-146/256   2.4338    0.024
 Seven-year note               98           2.5664    0.025
 10-year note                  96-172/256   2.637     0.026
 30-year bond                  96-204/256   2.9113    0.023
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        20.00        -0.50    
 U.S. 3-year dollar swap        19.00        -0.50    
 U.S. 5-year dollar swap         7.00         1.25    
 U.S. 10-year dollar swap        3.75         2.75    
 U.S. 30-year dollar swap      -13.00         3.50    

 (Reporting by Kate Duguid; Editing by Lisa Von Ahn and Leslie
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