May 2, 2018 / 1:23 PM / a year ago

TREASURIES-U.S. yields rise after private-sector jobs report

    * U.S. ADP report shows job gains of 204,000 
    * U.S. 2-year yields hit 9-1/2-year peak
    * U.S. Treasury to raise debt auction size

 (Adds comment, refunding announcement, details, table, byline,
updates prices in text)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 2 (Reuters) - U.S. Treasury yields rose on
Wednesday after data showed U.S. private-sector payrolls for
April came roughly in line with market forecasts, cementing
expectations for an interest rate increase in June.
    Before release of the payrolls data, yields on the U.S.
two-year note, the maturity most sensitive to the rate increase
outlook, hit their highest in more than nine years. 
    Payrolls processor ADP said U.S. private sector employment
grew by 204,000 last month, slightly exceeding expectations of
200,000 jobs.
    "Overall a solid read, though a very modest beat to be sure
which is leaving U.S. Treasuries holding losses in the
aftermath," said Aaron Kohli, director of rates strategy at BMO
Capital Markets in New York.
    "Hard to draw much of an inference for non-farm payrolls
since ADP hasn't had the best track record in predicting NFP
beats or misses recently and the read was well within a single
standard deviation of consensus," he added.
    The U.S. Labor Department will release its own report on
non-farm payrolls on Friday, with the market expecting an
addition of 192,000 jobs, according to a Reuters poll.
    Yields came off their highs, however, after the U.S.
Treasury said on Wednesday it will increase the size of its debt
auctions in the coming months, as widely expected, to raise more
money as the Federal Reserve reduces its public debt purchases.

    Officials also said the government would begin selling
2-month Treasury bills later this year and was studying the
possibility of an additional sale of 5-year TIPS, securities
that are tied to the rate of inflation. 
    The yield curve flattened a bit after the Treasury
announcement, with the spread between U.S. 5-year notes and
30-year bonds tightening to 31.6 basis points. On
the day, however, the curve steepened, with the gap slightly
wider at 32.9 basis points.
    "The Treasury refunding created some noise and some relief
for the long-end as the coupon size increases were mostly in
line with expectations," said Kohli.
    "There was some risk of a faster pace of long-end increases
and the fact that didn't happen created a flattening after the
fact," he added.
    In early morning trading, U.S. 10-year yields were at 2.981
percent, up from 2.976 percent late on Tuesday. 
    U.S. 30-year yields increased to 3.143 percent,
from Tuesday's 3.137 percent.
    On the front-end of the curve, U.S. two-year yields hit a
9-1/2-year high of 2.521 percent. They were last at
2.516 percent.
    May 2 Wednesday 8:59AM New York / 1259 GMT
 US T BONDS JUN8               143-3/32     -0-2/32   
 10YR TNotes JUN8              119-92/256   -0-4/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.825        1.8589    0.005
 Six-month bills               1.99         2.0381    0.002
 Two-year note                 99-186/256   2.5165    0.004
 Three-year note               99-52/256    2.6573    0.005
 Five-year note                99-170/256   2.8226    0.002
 Seven-year note               99-156/256   2.9372    0.000
 10-year note                  98-12/256    2.9813    0.005
 30-year bond                  97-64/256    3.1427    0.006
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.25         1.25    
 U.S. 3-year dollar swap        22.00         0.75    
 U.S. 5-year dollar swap        12.00         1.00    
 U.S. 10-year dollar swap        3.25         0.50    
 U.S. 30-year dollar swap      -11.25         0.25    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama)
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