U.S. 10-yr yield tops 1.5% level last seen in June



(Updates with market activity, auction result, analyst comments)

By Ross Kerber and Dhara Ranasinghe

Sept 27 (Reuters) - U.S. Treasury yields resumed their march higher on Monday, with 10-year yields hitting their highest level in three months on solid economic data and signals the Federal Reserve is shifting towards a more hawkish policy.

The 10-year Treasury US10YT=RR yield rose as high as 1.516% in morning trading, its first time above 1.5% since June 29, before falling back as the higher rate drew in buyers. It was last up 1.8 basis points at 1.4785%.

The benchmark note's yield rose almost 9 basis points last week, the fifth week of gains and the biggest weekly jump since March, as investors reacted to hawkish shifts by major central banks including the U.S. Federal Reserve and the Bank of England.

Across the curve, most other Treasury yields were higher on the day on Monday with 30-year yields rising above 2% for the first time since mid-August US30YT=RR .

The yield on the two-year note, US2YT=RR seen as an indicator of inflation expectations, was up a basis point at 0.284% in midday trading.

The high yield on a $60 billion auction of two-year notes was 0.31% - an above-average gap versus the pre-auction yield that suggested market demand for the notes was "uninspired," BMO Capital Markets analyst Ben Jeffery said in a research note.

Analysts said the continued selloff in bond markets was likely driven by position adjustments and a reassessment of the inflation outlook, after a strong Commerce Department report on durable goods Monday morning contributed to traders' risk-on sentiment.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% last month, the department said. Economists polled by Reuters had forecast core capital goods orders increasing 0.4%.

The Fed has said it will start to reduce its bond purchases as soon as November if the economy continues on its current track.

Tom di Galoma, managing director of Seaport Global Holdings, said he expected to see rates continue to move up during the last three months of the year especially for longer-term paper as Fed Chair Jerome Powell implements the central bank's program. "The Fed chair is as on-message as I have ever seen him," di Galoma said.

The Nasdaq index slipped more than 1% on Monday as investors swapped technology heavyweights for stocks linked to economic growth amid increasing confidence in a recovery.

September 27 Monday 12:22PM New York / 1622 GMT

Price

Current Net

Yield % Change

(bps) Three-month bills US3MT=RR 0.03

0.0304

-0.005 Six-month bills US6MT=RR

0.05

0.0507

0.000 Two-year note US2YT=RR

99-178/256 0.284

0.010 Three-year note US3YT=RR

99-120/256 0.5559

0.011 Five-year note US5YT=RR

98-234/256 0.9764

0.018 Seven-year note US7YT=RR

98-244/256 1.2835

0.021 10-year note US10YT=RR

97-232/256 1.4785

0.018 20-year bond US20YT=RR

96-212/256 1.9431

0.009 30-year bond US30YT=RR

100-32/256 1.9944

0.007

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap

11.00

-0.25

spread

U.S. 3-year dollar swap

12.25

0.00

spread

U.S. 5-year dollar swap

9.50

0.00

spread

U.S. 10-year dollar swap

2.75

0.00

spread

U.S. 30-year dollar swap

-24.25

-0.25

spread


Reporting by Dhara Ranasinghe and Ross Kerber; Editing by Bernadette Baum and Andrea Ricci

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