US yields lower on strong jobs data, Fed comments



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Updates with market activity in second and sixth paragraphs, Fed comments in fourth paragraph and impact on rate expectations

By Ross Kerber

May 31 (Reuters) -U.S. Treasury yields mostly moved lower on Wednesday on stronger jobs data and comments by Federal Reserve officials, ahead of a key U.S. congressional debt ceiling vote.

The yield on benchmark 10-year Treasury notes US10YT=RR was down 6.7 basis points to 3.629%.

Rates had already been trending down after a Wednesday morningreport showed an unexpected rise in U.S. job openings in April, and on coolinginflation in Europe.

Then Fed officials including its vice chair-designate pointed to a rate hike "skip" in June, which prompted a turnaround in expectations for the U.S. central bank's intentions.

Whereas federal funds futures traders at midday had seen a roughly two-thirdschance the Fed will hike interest rates at its June 13-14 meeting, as of late afternoon trading they saw a 73% probability the Fedwould leave rates unchanged.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 9.7 basis points at 4.3758%.

The U.S. House of Representatives is due to vote on Wednesday on a bill to lift the government's $31.4 trillion debt ceiling, a critical step to avoid a destabilizing default that could come early next week without congressional action.

Yields on Treasury bills due in early June, which had risen sharply last week on concerns those securities would be at risk of not being repaid, continued moving lower on investor optimism for a deal in Washington.

The yield on the T-bill maturing June 1 fell below 5% on Tuesday and was last at 4.6075%912796ZG7=. The yield on bills maturing on June 6 912797FM4= fell 3 basis points to 5.34%.

U.S. stock indexes were lower on Wednesday as a round of earnings highlighted the pinch of higher prices being felt by corporate America.

The yield on the 30-year Treasury bond US30YT=RR was down 5.3 basis points to 3.848%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at -75.1 basis points.

The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.18%, indicating the market sees annual inflation averaging at that level for the next decade.

The U.S. dollar 5 years forward inflation-linked swap USIL5YF5Y=R, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.491%.

May 31 Wednesday 3:36PM New York / 1936 GMT


Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

5.2575

5.4171

0.106

Six-month bills US6MT=RR

5.2275

5.444

-0.005

Two-year note US2YT=RR

99-195/256

4.3758

-0.097

Three-year note US3YT=RR

98-226/256

4.0294

-0.097

Five-year note US5YT=RR

99-130/256

3.7339

-0.087





Seven-year note US7YT=RR

100-102/256

3.6849

-0.075

10-year note US10YT=RR

97-228/256

3.6292

-0.067

20-year bond US20YT=RR

98-48/256

4.0077

-0.058

30-year bond US30YT=RR

96-16/256

3.8475

-0.053





DOLLAR SWAP SPREADS




Last (bps)

Net Change (bps)


U.S. 2-year dollar swap spread

20.00

0.75


U.S. 3-year dollar swap spread

12.50

0.75


U.S. 5-year dollar swap spread

8.25

0.25


U.S. 10-year dollar swap spread

3.00

0.25


U.S. 30-year dollar swap spread

-40.50

0.50





Reporting by Ross Kerber; Editing by Andrea Ricci, Paul Simao and Diane Craft

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