November 8, 2018 / 8:40 PM / 13 days ago

TREASURIES -U.S. yields hit decade-peak as Fed hints at more rate hikes

    * Fed statement brushes off market turmoil in October
    * U.S. yield curve retests flattest level in five weeks
    * Futures imply traders see 4-in-5 chance on Dec. rate hike 

 (Updates market action, adds quotes)
    By Richard Leong
    Nov 8 (Reuters) - U.S. Treasury yields rose on Thursday with
shorter-dated ones reaching their highest levels in over a
decade as the Federal Reserve hinted the U.S. economic expansion
remained on track, which warrants further interest rate
increases.
    Fed policy makers, as expected, left key short-term lending
rates at 2.00-2.25 percent following a two-day meeting. Their
policy statement signalled more rate hikes on the way with the
next one expected next month, which would be their fourth hike
this year.
    Some traders had speculated the Fed may tone down its
rhetoric to calm financial markets that were roiled in October
partly on worries about rising interest rates.
    "There are those people who are unsatisfied by this
statement because they were looking for a more dovish tone after
last month’s market volatility," said Gene Tannuzzo, deputy
global head of fixed income with Columbia Threadneedle in
Minneapolis.
    "There is nothing in the broad data that would shake them
from the current policy path,” he said.
    Interest rate futures implied a 78 percent chance the U.S.
central bank would raise rates at its Dec. 18-19 meeting, little
changed from late on Wednesday, CME Group's FedWatch program
showed.
    "The labor market has continued to strengthen and ...
economic activity has been rising at a strong rate," the Fed
said in its latest policy statement.
    The two-year yield, which is most sensitive to
traders' view on Fed policy, finished close to 2.977 percent,
the highest in 10-1/2 years after the Fed statement. 
    The five-year yield rose over 3 basis points at
3.088 percent after touching 3.098 percent, the highest in a
decade. 
    Longer-dated Treasury yields increased less than their
shorter-dated counterparts as inflation remains tame despite a
tight jobs market. Expectations of slower growth and uncertain
from tariffs will likely keep a lid on longer-term yields,
keeping the yield curve flat, analysts said.
    "I don't think inflation is a problem. In the U.S., we are
past peak growth," said Jack McIntyre, portfolio manager at
Brandywine Global in Philadelphia.
    Benchmark 10-year Treasury yields rose 2 basis
points to 3.234 percent. It was still below the 7-1/2 year high
of 3.261 percent set a month ago during a bond market rout.
    The gap between two-year and 10-year yield
shrank 1 basis point to 26.40 basis points, close its tightest
level in about five weeks.
November 8 Thursday 3:28PM New York / 2028 GMT
                               Price                  
 US T BONDS DEC8               137-2/32     -10/32    
 10YR TNotes DEC8              117-188/256  -8/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.3125       2.3583    -0.003
 Six-month bills               2.455        2.5202    0.005
 Two-year note                 99-208/256   2.9732    0.025
 Three-year note               99-128/256   3.0507    0.033
 Five-year note                98-252/256   3.0967    0.036
 Seven-year note               98-236/256   3.1734    0.035
 10-year note                  99-8/256     3.2392    0.026
 30-year bond                  98-236/256   3.4328    0.007
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       26.40        -1.00     
 30-year vs 5-year yield       33.50        -2.55     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        17.75         0.00    
 spread                                               
 U.S. 3-year dollar swap        15.00         0.50    
 spread                                               
 U.S. 5-year dollar swap        12.00        -0.50    
 spread                                               
 U.S. 10-year dollar swap        5.25        -0.25    
 spread                                               
 U.S. 30-year dollar swap       -9.75         0.75    
 spread                                               
 
    

    
 (Reporting by Richard Leong; 
Editing by Susan Thomas and Alistair Bell)
  
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