October 3, 2018 / 7:26 PM / 2 months ago

TREASURIES-Yields hit decade highs as no slowdown seen in Fed hikes

 (Recasts headline, adds paragraph on Evans speech)
    By Kate Duguid
    NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields reached
multiyear peaks, with the 10-year note's yield at its highest
since 2014 and maturities at the short end of the curve at
decade highs, after economic data on Wednesday bolstered the
case for the Federal Reserve to raise rates in December and
beyond.
    The yield on the benchmark 10-year note was on
track for its largest daily jump since the U.S. presidential
election in November 2016 as U.S. service sector activity hit a
21-year high and the ADP private payrolls data for September
came in stronger than expected.
    "This is a bigger reaction to economic data than anything
we've seen lately," said Gene Tannuzzo, senior portfolio manager
at Columbia Threadneedle Investments.
    The upbeat reports on Wednesday are likely keep the Fed on
track to raise interest rates again in December and suggest the
central bank's tightening policy is unlikely to end anytime
soon. The Fed increased rates last week for the third time this
year. Fed Chairman Jerome Powell said on Tuesday the economy's
outlook was "remarkably positive."
    Early on Wednesday, Fed policy maker Charles Evans, who is
among the decision-making committee's most dovish members,
indicated he backed a December rate hike, saying the likely path
higher for U.S. rates seemed "about as clear as you could write
up," at present.
    At the long end of the curve, the 30-year yield
rose more than 12.5 basis points to 3.342 percent, its highest
since September 2014. Benchmark 10-year government yields
, which reflect the market's view on the overall
health of the economy, were up nearly 12 basis points at 3.179
percent.   
    The yield on the 2-year note, which reflects
market  expectations of interest rate hikes, rose to 2.868
percent, its highest since June 2008, when it topped 3 percent.
Yields on the 3- and 5-year notes rose to
their highest since December 2007 and October 2008,
respectively.   
    The Institute for Supply Management (ISM) said its
non-manufacturing activity index jumped 3.1 points to 61.6 last
month, the highest reading since August 1997. The survey's
factory employment measure rose to 62.4 in September from 56.7
in August. This suggests September's nonfarm payrolls could
surprise on the upside when the government publishes its more
comprehensive employment report on Friday.

    Private payrolls rose by 230,000 jobs in September, the
largest gain since February, the ADP National Employment Report
showed, after an upwardly revised 168,000 increase in August. 

    October 3 Wednesday 3:17PM New York / 1917 GMT
                               Price                  
 US T BONDS DEC8               138-23/32    -1-25/32  
 10YR TNotes DEC8              118-52/256   -0-156/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.18         2.2225    0.000
 Six-month bills               2.3525       2.4139    0.011
 Two-year note                 99-204/256   2.8557    0.041
 Three-year note               99-120/256   2.9391    0.059
 Five-year note                99-90/256    3.0159    0.073
 Seven-year note               99-102/256   3.0963    0.084
 10-year note                  97-176/256   3.1493    0.093
 30-year bond                  94-64/256    3.3042    0.097
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        16.25        -0.75    
 spread                                               
 U.S. 3-year dollar swap        14.75        -1.00    
 spread                                               
 U.S. 5-year dollar swap        10.75        -0.75    
 spread                                               
 U.S. 10-year dollar swap        4.25        -1.00    
 spread                                               
 U.S. 30-year dollar swap       -9.25        -1.00    
 spread                                               
 



    
    
    

 (Reporting by Kate Duguid; 
Editing by David Gregorio and Jonathan Oatis)
  
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