June 4, 2018 / 6:58 PM / 5 months ago

TREASURIES-U.S. yields rise as worries about Europe recede

    * Italy, Spain get new but fragile governments 
    * Strong jobs data revive bets on more Fed rate hikes
    * Trade tension underpin demand for Treasuries 

 (New throughout, updates prices, market activity and comments;
adds graphic)
    By Richard Leong
    NEW YORK, June 4 (Reuters) - U.S. Treasury yields rose on
Monday with the 10-year yield hitting one-week highs as
investors pared safe-haven holdings of lower-risk government
debt due to fading fears about political turmoil in Italy and
Spain.
    A robust U.S. payrolls report in May renewed an upbeat
outlook for faster domestic growth and inflation, rekindling
expectations the Federal Reserve may consider raising rates
three more times in 2018, analysts said.
    Still, ongoing trade tensions kept demand for Treasuries
strong enough to keep U.S. yields well below multi-year peaks
reached more than two weeks ago.
    "People can now look at Italy and Spain and think, 'It's not
the best situation, but it's not terrible either,'" said Stan
Shipley, a strategist at Evercore ISI, in New York. "In the
meantime, the U.S. is looking pretty good." 
    Benchmark 10-year Treasury notes' yield was up
4.0 basis points at 2.935 percent after touching the highest in
a week. Last Tuesday, it tumbled to a seven-week low at 2.759
percent on record volume in the futures market.
    Two-year yield rose to 2.508 percent, up 4.0
basis points on renewed expectations the Fed may raise overnight
borrowing costs three more times by year-end to a target range
of 2.25-2.50 percent.
    The Federal Open Market Committee, the Fed's policy-setting
group, is widely expected to raise short-term interest rates for
a second time in 2018 at its policy meeting next week. It last
hiked rates in March to 1.50-1.75 percent.
    Bets on faster rate hikes had fallen last week on worries
about Europe before they were revived by a U.S. government
report showing a stronger-than-forecast 223,000 jobs increase
last month. Hourly wages grew 0.3 percent last month, suggesting
inflation was creeping higher.
    Italy averted a repeat election with a new
anti-establishment government sworn in on Friday following
months of political turmoil.
    Spain has a new prime minister in Pedro Sanchez, but his
minority government remains fragile and must address the revived
independence campaign in Catalonia.
    The thorny political predicaments in euro zone's third and
fourth largest economies are far from over, analysts said.
    Moreover, strong U.S. growth seen so far in the second
quarter is threatened by the possibility of a trade war with its
allies, Canada, Mexico and the European Union.
    "Concerns about trade are in the minds of investors and
that's supportive of Treasuries," said Mike Lorizio, head of
Treasuries trading at Manulife Asset Management in Boston.
 June 4 Monday 2:45PM New York / 1845 GMT
                               Price                  
 US T BONDS SEP8               143-9/32     -21/32    
 10YR TNotes SEP8              119-132/256  -11/32    
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.8725       1.907     -0.003
 Six-month bills               2.0575       2.1074    0.012
 Two-year note                 99-252/256   2.508     0.040
 Three-year note               99-248/256   2.6358    0.042
 Five-year note                99-218/256   2.782     0.042
 Seven-year note               99-228/256   2.8924    0.042
 10-year note                  99-124/256   2.935     0.040
 30-year bond                  100-212/256  3.0824    0.035
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       42.50        -0.10     
 30-year vs 5-year yield       29.90        -0.15     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.00        -0.50    
 spread                                               
 U.S. 3-year dollar swap        21.50        -0.25    
 spread                                               
 U.S. 5-year dollar swap        13.00         0.25    
 spread                                               
 U.S. 10-year dollar swap        5.50         0.25    
 spread                                               
 U.S. 30-year dollar swap       -8.00         0.00    
 spread                                               
 
    
 (Reporting by Richard Leong
Editing by Nick Zieminski and David Gregorio)
  
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