February 2, 2018 / 3:52 PM / a year ago

TREASURIES-Robust jobs data intensifies U.S. bond market sell-off

    * U.S. 10-year yield hits 4-year peak, 2-year highest since
    * Year-over-year U.S. wage growth strongest since 2009
    * U.S. 2-year, 10-year part of yield curve steepest since

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Feb 2 (Reuters) - A strong payrolls report on
Friday raised concerns the Federal Reserve might hasten to
increase interest rates to stem inflation, compounding a bond
market rout that pushed the yield on the U.S. 10-year Treasury
to a four-year high.
    Global bond yields have been rising on expectations of
improving global growth and speculation on reduced stimulus from
overseas central banks.
    While traders appear more upbeat on economic prospects
outside the United States, domestic business activities have
remained solid with signs inflation is edging closer to the
Fed's 2 percent target. 
    Some Fed officials have been reluctant to raise rates
further without evidence of an acceleration in inflation. 
    The Labor Department said on Friday employers hired 200,000
workers last month, more than the 160,000 they added in
December. More importantly, average hourly earnings grew 0.3
percent, bringing its year-over-year increase to 2.9 percent,
the biggest annual rise since June 2009.
    "This supports the notion of growing wage pressure in a
tightening labor market," said Bill Northey, chief investment
officer at the private client group of U.S. Bank in Helena,
    The encouraging wage figure lifted a gauge of investor
expectations on inflation to its highest in almost 3-1/2 years.
    The yield premium on regular 10-year Treasury notes over
10-year Treasury Inflation Protected Securities grew to 2.13
percentage points, the most since September 2014, according to
Reuters and Tradeweb data.
    As the inflation outlook has strengthened, traders have
piled into bets the U.S. central bank would achieve at least
three rate increases in 2018, matching the number put into place
last year.
    The yield on the Benchmark 10-year Treasury
reached a four-year peak at 2.852 percent. At 10:27 a.m. (1527
GMT), it was 2.841 percent, up 6.8 basis points on the day.
    The two-year yield touched a nine-plus year high
at 2.186 percent, while the five-year yield hit 2.621
percent, its loftiest since April 2010.
    The yield curve further reversed its earlier flattening move
tied to expectations that inflation would stay muted. The yield
spread between two-year and 10-year Treasuries widened to 67
basis points, the most since mid-November after hitting a decade
low nearly a month ago.
February 2 Friday 10:28AM New York / 1528 GMT
 US T BONDS MAR8               145-7/32     -1-11/32   
 10YR TNotes MAR8              120-192/256  -0-120/25  
                               Price        Current    Net
                                            Yield %    Change
 Three-month bills             1.4625       1.4881     0.000
 Six-month bills               1.6175       1.6532     0.005
 Two-year note                 99-170/256   2.1736     0.013
 Three-year note               99-2/256     2.3508     0.034
 Five-year note                98-232/256   2.6103     0.051
 Seven-year note               98-68/256    2.7748     0.065
 10-year note                  94-252/256   2.8411     0.068
 30-year bond                  93-208/256   3.0684     0.062
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
 U.S. 2-year dollar swap        21.00         1.25     
 U.S. 3-year dollar swap        19.50         0.75     
 U.S. 5-year dollar swap         8.75         0.25     
 U.S. 10-year dollar swap        3.25        -0.25     
 U.S. 30-year dollar swap      -12.50         0.00     

 (Reporting by Richard Leong; Editing by Steve Orlofsky)
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