U.S. yields rise ahead of Powell speech, November jobs data



By Herbert Lash and Gertrude Chavez-Dreyfuss

NEW YORK, Nov 29 (Reuters) -

U.S. Treasury yields rose on Tuesday as investors awaited comments this week by Federal Reserve Chairman Jerome Powell and labor market data for November that could reinforce expectations the U.S. central bank will slow its pace of hiking interest rates.

Powell will address the economy, inflation and labor on Wednesday at the Brookings Institution, while the non-farm payrolls report comes out Friday, with economists polled by Reuters expecting 200,000 jobs to have been added this month.

Investors also are waiting for data on U.S. gross domestic product for the third quarter, Chicago manufacturing numbers and factory activity based on the Institute for Supply Management.

"We haven't gotten any new information, new economic data that would significantly alter the (market's) path," said Tom Simons, money market economist at Jefferies & Co.

The market has been slow to incorporate "extremely consistent" messaging from the Fed that it is not done hiking rates, which will be in smaller increments, but that once they get to the terminal rate it will stay there for a while, Simons said.

Fed funds futures have priced in a 63.5% chance of a 50-basis-point hike at the Fed's policy meeting Dec. 13-14, with the terminal rate peaking at 5.007% next June and then falling to 4.644% in December 2023. FEDWATCH .

Markets believe "the Fed is going to be able to pivot toward a more neutral level of the federal funds more quickly than is likely to be the case," Simons said.

The yield on 10-year Treasury notes US10YT=RR

rose 5 basis points

to

3.752

%, while the two-year US2YT=RR yield, which typically moves in step with interest rate expectations,

rose 1.5 basis points

at

4.486

%.

The yield curve measuring the gap between yields on two- and 10-year notes US2US10=RR remained deeply inverted at

-73.6

basis points. The inversion, when yields on short-dated debt are higher than longer-dated debt, indicates a looming recession.

"The bond market has a pretty heavily inverted yield curve pricing in a pretty lengthy recession with an understanding the Fed isn't going to be there right away to rescue the market if things slow down," Simons said.

Investors sold Treasuries as they anticipate details about Amazon.com Inc's AMZN.O multi-tranche corporate bond deal.

The deal features two-, three-, five-, seven- and 10-year notes. The initial price talk on the maturities is U.S. Treasuries plus 45 basis points (bps, 55 bps, 85 bps, 100 bps, and 115 bps, respectively.

Wall Street dealers typically look to lock in borrowing costs for corporate bonds they are underwriting. As part of that process, a dealer sells Treasuries as a hedge to lock in the borrowing cost on the bond issue before the deal is completed. Once the bond is sold, the dealer buys Treasuries to exit the "rate lock."

"We are the low end of the range yields. When you see corporate supply as a factor, we tend to see a little sell-off," said Subadra Rajappa, head of U.S. rates strategy, at Societe Generale in New York.

The yield on the 30-year Treasury bond US30YT=RR was

up 5.5 basis points

at

3.804

%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at

2.358

%.

The 10-year TIPS breakeven rate US10YTIP=RR was last at

2.267

%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

The U.S. dollar 5 years forward inflation-linked swap USIL5YF5Y=R was last at

2.465

%. The swap is seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing.

Nov. 29 Tuesday 3:47 p.m. New York / 2047 GMT

Price

Current Net

Yield % Change

(bps) Three-month bills US3MT=RR

4.27

4.3771

-0.025 Six-month bills US6MT=RR

4.5525

4.7245

-0.010 Two-year note US2YT=RR

100-7/256

4.4856

0.015 Three-year note US3YT=RR

100-174/256 4.2524

0.022 Five-year note US5YT=RR

99-194/256 3.9288

0.037 Seven-year note US7YT=RR

100-28/256 3.857

0.046 10-year note US10YT=RR

103-20/256 3.7516

0.050 20-year bond US20YT=RR

99-192/256 4.0182

0.043 30-year bond US30YT=RR

103-124/256 3.804

0.055

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap spread

30.75

-0.75

U.S. 3-year dollar swap spread

12.00

-1.00

U.S. 5-year dollar swap spread

4.00

-1.50

U.S. 10-year dollar swap spread

-4.25

-1.00

U.S. 30-year dollar swap spread

-45.00

-0.25


Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski and Richard Chang

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