May 4, 2018 / 5:41 PM / a year ago

TREASURIES-Yields rise in line with stocks ahead of debt supply next week

    * 10-year, 30-year yields slide to two-week lows
    * 2-year to 10-year yield curve tightest in two weeks
    * Fed still seen hiking in June, but pace is gradual
    * Traders look ahead to next week's debt supply

 (Recasts, adds analyst comments, updates prices in text, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 4 (Reuters) - U.S. Treasury yields climbed
from multi-week lows on Friday, bolstered by gains in the stock
market as investors believed a weaker-than-expected jobs report
will not deter the Federal Reserve from raising interest rates
at the June meeting.
    Yields on U.S. benchmark 10-year notes and 30-year yields
earlier slid to two-week lows after the jobs data, while those
on two-year notes fell to a one-week trough.
    Those gains subsequently reversed.
    The Labor Department said U.S. non-farm payrolls grew last
month by 164,000, lower than market expectations for a rise of
192,000 jobs. Average earnings growth, a closely monitored
inflation indicator, grew by just 0.1 percent in April after
rising 0.3 percent the previous month.
    "The data was not great, but I don't think anybody has
changed his mind about what the Fed is going to do. The Fed will
still continue to hike," said Tom Simons, money market economist
at Jefferies in New York.
    "In the stock market, it looks like it has rejected any weak
interpretation of the jobs data and that certainly helps the
risk-on tone in the market," he added.
    Analysts also said investors are also looking ahead to the 
Treasury's May refunding auctions next week, with $73 billion in
debt on offer. 
    On Wednesday, the Treasury department announced a higher
supply of debt issue to offset the impact of a Fed that has been
winding down its purchases as well as finance a massive fiscal
deficit as result of President Donald Trump's tax cut scheme and
increased spending program. 
    That should ensure rates will remain higher, analysts said.
    "Further concessions next week into the auctions, which
begin Tuesday, could help at the margin, though higher rates
really haven't brought in strong demand for some time now," said
Action Economics in its blog.
    In early afternoon trading, U.S. benchmark 10-year yields
rose to 2.951 percent from 2.946 percent late on
    U.S. 30-year bonds increased to 3.126 percent,
from Thursday's 3.121 percent.
    U.S. two-year yields were also up at 2.500
percent, from 2.484 percent on Thursday.
    The yield curve flattened again after the report, with the
spread between U.S. 2-year and 10-year notes contracting to
43.90 basis points, the tightest in two weeks.
The spread was last at 44.90 basis points.
    The flattening yield curve is being driven by doubts among
investors that inflation will pick up over the long term.
    May 4 Friday 1:23PM New York / 1723 GMT
 US T BONDS JUN8               143-16/32    -0-2/32   
 10YR TNotes JUN8              119-168/256  -0-8/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.8025       1.8355    0.005
 Six-month bills               1.9875       2.0351    0.012
 Two-year note                 99-194/256   2.5009    0.017
 Three-year note               99-70/256    2.6332    0.012
 Five-year note                99-214/256   2.7854    0.003
 Seven-year note               99-216/256   2.8998    0.003
 10-year note                  98-76/256    2.9515    0.005
 30-year bond                  97-148/256   3.1254    0.004
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        26.25        -0.50    
 U.S. 3-year dollar swap        21.75         0.25    
 U.S. 5-year dollar swap        12.50         0.25    
 U.S. 10-year dollar swap        3.00         0.00    
 U.S. 30-year dollar swap      -12.00        -0.25    
 (Additional reporting by Richard Leong
Editing by David Gregorio and Dan Grebler)
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