July 6, 2018 / 7:13 PM / in 9 months

TREASURIES-Prices flat, yields bounce off 5-week lows as equities gain

    * U.S. wages increased 0.2 pct in June
    * Two-year, 10-year yield curve fell to flattest since 2007
    * Muted reaction to China/U.S. tariffs

 (New throughout, updates prices, market activity and comments)
    By James Thorne and Karen Brettell
    NEW YORK, July 6 (Reuters) - U.S. 10-year Treasuries were
little changed on Friday, with yields falling to their lowest
level in five weeks on data that showed subdued U.S. wage
pressure, but then returning to about where they were before the
report as stock prices rose.
    "The fact that stocks were able to rally pulled some safe
haven support for Treasuries," said John Canavan, market
strategist at Stone & McCarthy Research Associates in New York.
    The Nasdaq rose 1.25 percent and the S&P 500 rose 0.85
percent, both hitting two-week highs.
    Jobs data showed that average hourly earnings rose 5 cents,
or 0.2 percent, in June after increasing 0.3 percent in May.
Economists had expected a 0.3 percent increase. Nonfarm payrolls
increased by 213,000 jobs in the month.
    “Average hourly earnings are, I think, the number that most
Treasury traders are laser-focused in these employment reports,
that I think is why you got a little bit of an initial rally,”
said Thomas Simons, a money market economist at Jefferies in New
    The increase in the unemployment rate to 4 percent, which
would typically dampen expectations for future Fed rate hikes,
was "due in part to the rise in the labor force participation
rate," Canavan said.
    Benchmark 10-year note yields sat at 2.829
percent at 2:47 pm EST (1847 GMT) after touching 2.807 percent,
the lowest since May 30.
    The yield curve between 2-year and 10-year notes
 shrank to less than 27 basis points, the flattest
since 2007, before rising to 28.40 basis points, which was above
the previous day's close.
    The yield curve has flattened as investors expect the Fed to
continue raising interest rates even as long-term inflation
looks likely to be subdued.
    Core CPI inflation numbers are due to come out at 8:30 a.m.
[1230 GMT] next Thursday.
    Bonds had muted reaction after the United States and China
slapped tit-for-tat duties on $34 billion worth of the other's
imports, with Beijing accusing Washington of triggering the
"largest-scale trade war."
    “The markets are still waiting and hoping that both sides
dial down the rhetoric. The reaction this morning just confirms
that this is old news," said Mike Bazdarich, senior economist at
Western Asset Management in Pasadena, California.
  July 6 Friday 2:47PM New York / 1847 GMT
 US T BONDS SEP8               145-21/32    5/32      
 10YR TNotes SEP8              120-88/256   3/32      
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.915        1.9506    -0.005
 Six-month bills               2.065        2.1153    0.007
 Two-year note                 99-234/256   2.5447    -0.016
 Three-year note               99-246/256   2.6386    -0.011
 Five-year note                99-138/256   2.7246    -0.015
 Seven-year note               99-176/256   2.7996    -0.009
 10-year note                  100-96/256   2.8309    -0.009
 30-year bond                  103-168/256  2.94      -0.012
         YIELD CURVE           Last (bps)   Net       
 10-year vs 2-year yield       28.40        0.80      
 30-year vs 5-year yield       21.40        -0.15     
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        25.00        -0.50    
 U.S. 3-year dollar swap        21.75        -1.00    
 U.S. 5-year dollar swap        15.25        -0.25    
 U.S. 10-year dollar swap        8.00         0.00    
 U.S. 30-year dollar swap       -4.25         0.25    
 (Reporting by James Thorne and Karen Brettell; Editing by David
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