July 3, 2017 / 6:08 PM / a month ago

TREASURIES-Yields jump on U.S. manufacturing data, hawkish policy bets

    * ISM manufacturing rises to 57.8 in June, above expected
55.2
    * Bets on tighter central bank policy pressure yields higher
    * 2-year yields hit highest in more than 8 years
    * Friday's U.S. employment report looms

 (Updates prices, adds economists' expectation for June non-farm
payrolls)
    By Sam Forgione
    NEW YORK, July 3 (Reuters) - U.S. Treasury yields rose on
Monday, with two-year yields touching their highest in more than
eight years after U.S. manufacturing data boosted expectations
that the Federal Reserve would raise interest rates again this
year as other central banks shift toward tighter monetary
policy. 
    The Institute for Supply Management (ISM) said its index of
national factory activity rose to 57.8 last month from 54.9 in
May. Economists polled by Reuters had expected a reading of
55.2.
    The expansion in manufacturing, which accounts for roughly
12 percent of the overall U.S. economy, combined with hawkish
comments last week from the heads of the European Central Bank
and the Bank of England to pressure yields higher.

    Analysts also said traders were selling Treasuries in
anticipation of Friday's U.S. June employment report, which
could push yields higher if jobs and wage growth beat
expectations. Economists polled by Reuters expect U.S. employers
to have added 179,000 jobs last month. 
    "The remarks from last week from central bankers and the ISM
data from today help continue to pressure rates higher, and if
we do get a solid number on Friday, that could keep the sell-off
going," said Gennadiy Goldberg, an interest rate strategist at
TD Securities in New York.
    Short-dated U.S. Treasury yields, which are considered most
sensitive to Fed rate policy, surged. Two-year yields touched
1.426 percent to mark their highest since early June
2009, while three-year yields touched their highest in more than
three months of 1.595 percent. 
    Benchmark 10-year yields hit a nearly seven-week
high of 2.353 percent, while 30-year yields touched
their highest in nearly three weeks of 2.873 percent. Five- and
seven-year yields hit their highest since
early May of 1.941 percent and 2.199 percent. 
    Analysts said trading volume was thin, with the U.S. bond
market closing early at 2 p.m. EDT (1800 GMT) ahead of the July
4 Independence Day holiday.
    "(The manufacturing data) reinforces the risk of a tighter
Fed," said Bruno Braizinha, interest rates strategist at Societe
Generale in New York.
    Braizinha added that since expectations of another rate hike
from the Fed had bottomed out in recent sessions, there was a
greater risk of traders pricing in higher expectations of
another Fed rate hike this year if Friday's employment report
beats expectations. 
    A raft of weak U.S. economic data, including soft inflation
readings, had reduced expectations of another rate rise in
recent weeks. 
    
    July 3 Monday 1:56PM New York / 1756 GMT
                               Price                  
 US T BONDS SEP7               152-31/32    -0-23/32  
 10YR TNotes SEP7              125-24/256   -0-112/2  
                                            56        
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.01         1.0265    0.005
 Six-month bills               1.1225       1.1444    -0.003
 Two-year note                 99-174/256   1.4141    0.028
 Three-year note               99-192/256   1.5871    0.041
 Five-year note                99-34/256    1.9332    0.046
 Seven-year note               98-196/256   2.1915    0.053
 10-year note                  100-52/256   2.3516    0.050
 30-year bond                  102-168/256  2.8669    0.028
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        22.75        -0.50    
 spread                                               
 U.S. 3-year dollar swap        19.25        -0.75    
 spread                                               
 U.S. 5-year dollar swap         6.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -3.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -29.50         0.50    
 spread                                               
 
 (Reporting by Sam Forgione; Editing by Dan Grebler and Grant
McCool)
  

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