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TREASURIES-Yields fall from peaks ahead of Italian vote, U.S. data impact muted
December 2, 2016 / 4:04 PM / 9 months ago

TREASURIES-Yields fall from peaks ahead of Italian vote, U.S. data impact muted

* Yields fall from multi-month, multi-year highs
    * Sunday Italian referendum boosts haven buying
    * U.S. employers add 178,000 jobs in Nov., near expectations

    By Sam Forgione
    NEW YORK, Dec 2 (Reuters) - U.S. Treasury yields eased from
multi-month and multi-year highs on Friday as traders bought
U.S. government bonds on the heels of their worst month in
nearly eight years in anticipation of an Italian referendum,
while the impact of U.S. jobs data was short-lived.
    Traders dipped their toes into safe-haven U.S. government
bonds ahead of Italy's Sunday vote on constitutional reform and
lightened up on bearish bets that had driven benchmark 10-year
yields to a 1-1/2-year high of 2.492 percent and three-year
yields to a more than 5-1/2-year high of 1.469 percent on
Thursday. 
    The Labor Department said nonfarm payrolls increased by
178,000 jobs last month, while the unemployment rate dropped to
a more than nine-year low of 4.6 percent. A pullback in wage
growth after two straight months of solid increases, however,
put a wrinkle in the otherwise upbeat employment report.
 
    The jobs growth was largely in line with expectations of
economists polled by Reuters for a gain of 175,000. Analysts
said the data generally did not alter expectations that the
Federal Reserve would raise interest rates later this month and
twice next year. 
    "The fact that employment growth continues to be robust is
going to give the Fed confidence this month and then looking to
further tighten policy next year," said Mark Cabana, head of
U.S. short rates strategy at Bank of America Merrill Lynch in
New York.
    The data had a brief impact on Treasury yields, with
benchmark yields jumping to 2.4393 percent before
dipping back to a session low of 2.381 percent later in morning
trading. U.S. 30-year yields hit a session low of
3.048 percent after touching a 16-1/2-month high of 3.156
percent Thursday. 
    "Some of what's happening today is just a correction from
the big moves, plus we have a big event risk over the weekend
with the Italian referendum," said Priya Misra, head of global
rates strategy at TD Securities in New York. "The market is not
giving the payroll report as much importance as just general
risk-off." 
    Misra said, however, that she expected the move upward in
yields to eventually continue. Traders sold off Treasuries in
November on bets that U.S. President-elect Donald Trump's
policies and higher oil prices would stoke inflation, which
erodes bond prices. 
    U.S. Treasuries posted a negative 2.7 percent return in
November to mark their worst performance since January 2009,
according to Bloomberg Barclays index data.
    
    December 2 Friday 10:39AM New York / 1539 GMT
                               Price                  
 US T BONDS MAR7               150-14/32    0-30/32   
 10YR TNotes MAR7              124-140/256  0-144/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.4675       0.4745    0.000
 Six-month bills               0.5975       0.6076    0.000
 Two-year note                 99-200/256   1.1116    -0.035
 Three-year note               98-230/256   1.383     -0.051
 Five-year note                99-166/256   1.8241    -0.071
 Seven-year note               99-168/256   2.1783    -0.070
 10-year note                  96-156/256   2.3849    -0.056
 30-year bond                  96-128/256   3.0541    -0.041
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        21.00         1.00    
 spread                                               
 U.S. 3-year dollar swap        13.50         1.25    
 spread                                               
 U.S. 5-year dollar swap        -1.00         1.75    
 spread                                               
 U.S. 10-year dollar swap      -15.75         0.75    
 spread                                               
 U.S. 30-year dollar swap      -54.25         0.50    
 spread                                               
 

 (Reporting by Sam Forgione)

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