October 5, 2017 / 7:26 PM / 9 months ago

TREASURIES-Yields advance as Fed officials boost December U.S. rate hike

    * Fed officials support rate hike in December
    * December rate hike prospects now at 80 pct

 (Recasts, adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 5 (Reuters) - U.S. Treasury debt yields rose
on Thursday, bolstered by continued gains in the U.S. stock
market as well as bullish comments on the economy from Federal
Reserve officials that supported another rate hike in December.
    Philadelphia Federal Reserve Bank President Patrick Harker,
a voter on the Federal Open Monetary Policy Committee, said on
CNBC he still expects a rate increase in December.
    San Francisco Fed President John Williams echoed the same
sentiment. He said he does not need to see inflation move higher
to support another interest rate increase this year as long as
other economic data points to continued economic strength.
Williams is a voter on the FOMC in 2018.
    Following the Fed officials' comments, the rate futures
market has priced in a more than 80 percent chance of a rate
increase in December, according to CME's FedWatch. 
    Investors are also looking to Friday's U.S. non-farm
payrolls report, even though the headline number could be
distorted by the hurricanes that hit the United States last
    Wall Street economists expect just 90,000 new U.S. jobs for
September, down from 156,000 in August, according to a Reuters
    Lou Brien, market strategist, at DRW Trading in Chicago said
he was not sure about the U.S. payrolls' impact on financial
markets given the expected distortions from the hurricanes.
    "As far as the Fed is concerned, the labor market is a done
deal. What could shift the Fed's view would be any change in
inflation," said Brien.
    Long-dated short positions in Treasuries have been stretched
and investors looked to square up ahead of a potentially
volatile trading day on Friday because of the payrolls number,
analysts said.
    U.S. 10-year note yields had risen about 20 basis points in
September, while 30-year bond yields climbed 13 basis points,
bolstered by an uptick in inflation and a more bullish economic
outlook from the Federal Reserve. 
    In late trading, the benchmark 10-year U.S. Treasury note
yield was at 2.349 percent, up from 2.332 percent
late on Wednesday, while the 30-year yield was at
2.891 percent, up from 2.877 percent.
    U.S. two-year note yields were up at 1.495
percent, from 1.479 percent on Wednesday.
    Data on Thursday showed underlying strength in the U.S.
    The number of Americans filing for unemployment benefits
fell more than expected last week to 260,000 for the week ended
Sept. 30.
    The U.S. trade deficit also narrowed for the month of August
to $42.4 billion, the smallest since September 2016.            
    October 5 Thursday 3:08PM New York / 1908 GMT
 US T BONDS DEC7               152-9/32     -0-9/32   
 10YR TNotes DEC7              125-48/256   -0-36/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.0525       1.0699    0.000
 Six-month bills               1.195        1.2189    0.003
 Two-year note                 99-196/256   1.4953    0.016
 Three-year note               99-70/256    1.6288    0.014
 Five-year note                99-170/256   1.946     0.022
 Seven-year note               99-164/256   2.1807    0.022
 10-year note                  99-32/256    2.3498    0.018
 30-year bond                  97-44/256    2.892     0.015
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.75        -0.25    
 U.S. 3-year dollar swap        24.00        -0.25    
 U.S. 5-year dollar swap         7.75        -0.50    
 U.S. 10-year dollar swap       -4.75        -0.50    
 U.S. 30-year dollar swap      -32.75        -0.25    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith
Mazzilli and Diane Craft)
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