October 27, 2017 / 3:01 PM / 3 years ago

TREASURIES-U.S. yields dip on Catalonia news, Fed chair speculation

    * U.S. Q3 GDP rises 3.0 pct, better than expected
    * Fed on track to raise rates in December
    * Catalonia moves to declare independence from Spain
    * Trump said to favor Powell as Fed chairman-Bloomberg

 (Recasts, adds comment, updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 27 (Reuters) - U.S. Treasury yields turned
lower on Friday after Catalonia's parliament declared
independence from Spain, and amid reports President Donald Trump
was said to be favoring Federal Reserve Governor Jay Powell to
lead the U.S. central bank.
    The news overshadowed a report showing the world's largest
economy grew more than expected in the third quarter, showing
resilience despite the impact of Hurricanes Irma and Harvey.

    U.S. two-year note yields had risen to new nine-year highs
after the advance data on the country's gross domestic product.
U.S. benchmark 10-year yields initially rose after the report.
    Yields, however, started moving lower following news that
Catalonia had openly defied the Spanish government with its
parliament passing a motion to break away from Spain. Still,
Spain was prepared to impose direct rule over the region.

    Yields further extended declines after Bloomberg reported
that Trump was leaning toward Powell as the next Fed chairman.
    Justin Lederer, Treasury analyst at Cantor Fitzgerald in New
York, said Powell was viewed as less hawkish than the other
candidate, Stanford University economist John Taylor, and
therefore was expected to continue the current Fed path of
gradually raising interest rates. 
    On Thursday, Politico reported that current Fed Chair Janet
Yellen was out of the running.
    Data showed early Friday that U.S. gross domestic product
grew at a 3.0 percent annual rate in the third quarter after
expanding 3.1 percent in the second. Economists polled by
Reuters had forecast the economy to grow 2.5 percent in the
quarter through September. 
    The GDP news initially sparked a sell-off in Treasuries,
pushing yields higher. The data cemented expectations the Fed
will raise interest rates in December.
    "Hurricanes Harvey and Irma had the potential to blow the
U.S. economy off course, particularly as they were expected to
impact on consumer spending and construction," said Jacob Deppe,
head of trading at online trading platform Infinox in London.
    "But the U.S. economy had enough time to bounce back,
demonstrating significant underlying strength and resilience in
the third quarter," he added.
    In late morning trading, U.S. two-year note yields fell to
1.595 percent, from Thursday's 1.619 percent. Earlier, two-year
yields rose to a nine-year peak of 1.639 percent
after the GDP data. 
    U.S. 10-year U.S. Treasury note yields were at 2.424 
percent, down from 2.454 percent late Thursday.
Earlier in the session, 10-year yields hit a new seven-month
peak of 2.477 percent.
    U.S. 30-year bond yields were also down at 2.936 percent
, from 2.961 percent on Thursday.
      October 27 Friday 10:41AM New York / 1441 GMT
 US T BONDS DEC7               151-7/32     0-16/32   
 10YR TNotes DEC7              124-168/256  0-72/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.085        1.103     -0.005
 Six-month bills               1.2475       1.2727    -0.005
 Two-year note                 99-210/256   1.5915    -0.027
 Three-year note               99-188/256   1.7174    -0.030
 Five-year note                99-212/256   2.0363    -0.035
 Seven-year note               99-228/256   2.267     -0.034
 10-year note                  98-128/256   2.4228    -0.031
 30-year bond                  96-84/256    2.9356    -0.025
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        22.25         0.00    
 U.S. 3-year dollar swap        21.75        -0.75    
 U.S. 5-year dollar swap         6.75        -0.25    
 U.S. 10-year dollar swap       -3.75        -0.75    
 U.S. 30-year dollar swap      -30.25        -0.50    
 (Editing by Susan Thomas and Bernadette Baum)
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