October 6, 2017 / 7:12 PM / a year ago

TREASURIES-U.S. yields rise as jobs data shows fall in unemployment rate, wage growth

    * North Korea ready to test long-range missile -report
    * U.S. economy loses jobs in September, but wages rise
    * U.S. rate hike expectations in December intact

 (Adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 6 (Reuters) - U.S. Treasury yields advanced on
Friday after data showed the world's largest economy lost jobs
last month due to the impact of Hurricanes Harvey and Irma, but
details of the report on the unemployment rate and wage growth
suggested an improving labor market.
    The payrolls number did not shake expectations of an
interest rate increase by the Federal Reserve at its policy
meeting in December.
    U.S. benchmark 10-year yields climbed to five-month peaks,
while those on 30-year bonds advanced to two-month highs after
the jobs data.
    U.S. two-year yields, meanwhile, soared to a nine-year high.
    "Despite the magnitude of the miss relative to expectations,
the capital markets should look through the near-term data and
view it in conjunction with the next few months of recovery," 
said Bill Northey, chief investment officer at U.S. Bank Wealth
Management in Helena, Montana.
    "An additional 25 basis-point rate hike in December remains
the base case. The rates and the fed funds futures market,
post-release, are consistent with our view and reading of the
data," he added.
    Yields, however, pared gains on a report North Korea was
ready to test a long-range missile, analysts said.
    Russian RIA news agency quoted a Russian lawmaker who had
visited Pyongyang on Oct. 2-6 as saying the test was for a
missile North Korea believes can reach the U.S. West Coast.

    Reuters could not immediately verify the veracity of that
    Outside of North Korea, investors had little appetite for
Treasuries following the mixed U.S. jobs data.
    U.S. nonfarm payrolls fell by 33,000 jobs last month amid a
record drop in employment in the leisure and hospitality sector.
But the unemployment rate fell to 4.2 percent, the lowest since
February 2001.
    The average hourly earnings, meanwhile, increased 12 cents 
in September after rising 0.2 percent in August.
    Following the U.S. jobs data, the rate futures market has
priced in a more than 90 percent chance of a Fed tightening in
December, according to CME's FedWatch.
    Market participants have recently been focusing less and
less on the headline payrolls number, and instead have turned
their attention to wage growth.
     In late trading, the 10-year U.S. Treasury note yield
 was at 2.369 percent, up from Thursday's 2.35
percent. But the yield came off its highest level since May 11,
above 2.4 percent.
    The 30-year yield was at 2.904 percent, off its
strongest level since August 1 of 2.933 percent.
    U.S. two-year note yields came off a nine-year
high and was last at 1.512 percent.
    October 6 Friday 3:02PM New York / 1902 GMT
 US T BONDS DEC7               151-30/32    -0-10/32  
 10YR TNotes DEC7              125-8/256    -0-32/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.0525       1.0698    0.000
 Six-month bills               1.205        1.229     0.010
 Two-year note                 99-188/256   1.5121    0.017
 Three-year note               99-56/256    1.649     0.017
 Five-year note                99-146/256   1.9661    0.018
 Seven-year note               99-136/256   2.1978    0.017
 10-year note                  98-248/256   2.3679    0.018
 30-year bond                  96-232/256   2.9056    0.013
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.75        -0.25    
 U.S. 3-year dollar swap        24.25         0.00    
 U.S. 5-year dollar swap         8.00         0.25    
 U.S. 10-year dollar swap       -4.75         0.25    
 U.S. 30-year dollar swap      -32.75         0.00    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette
Baum, Grant McCool and Jonathan Oatis)
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