U.S. yields rise as investors await inflation data, Fed meeting



By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 8 (Reuters) - U.S. Treasury yields advanced on Thursday, in a week that has seen rates veer between gains and losses and trading lacking conviction as investors await reports on inflation and the Federal Reserve's monetary policy meeting next week.

U.S. yields slightly extended gains after data showed initial jobless claims modestly rose last week. Continuing unemployment claims, however, jumped to 1.671 million for the week, a 10-month high, which suggested the labor market is deteriorating.

The bond market expects rates to trend lower on expectations inflation will ease and the Fed will slow the pace of its rate hikes, as indicated by Chair Jerome Powell on Nov. 30, following big increases in the last several meetings.

Thursday's rise in yields was a blip in the U.S. rate downtrend, analysts said.

U.S. producer price numbers are due for release on Friday, while the consumer price index will be out on Tuesday, the day before the Fed announces its policy decision.

"With the Fed up next week, the market is anxiously waiting for a ceiling on the fed funds rate and a peak on inflation.

Any time you get some type of news, if it's tied to weak economic growth or weak inflation, the momentum (in rates) has been to the downside, " said Jim Barnes, director of fixed income, at Bryn Mawr Trust in Berwyn, Pennsylvania.

"Every now and then, there would be a pause and basically that has been the direction. This is probably going to continue until next Wednesday when the Fed announces its decision on rates."

A closely-watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB narrowed its inversion to -82.5 basis points (bps), after widening to -85.2 bps on Wednesday, the most in two weeks.

That curve's inversion was at -85.7 more than two weeks ago and anything deeper than that would be the most since at least 1999.

An inversion of this yield curve is typically a precursor to recession.

In mid-morning trading, the yield on 10-year Treasury notes US10YT=RR was up 7 bps at 3.478%.

U.S. 30-year yields US30YT=RR were up 4 bps at 3.455%.

At the shorter-end of the curve, U.S. two-year yields US2YT=RR , which typically reflect interest rate expectations, were up 4.5 bps at 4.301%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) USBEI5Y=RR rose to 2.409%, from 2.380% in the previous session. This rate suggests inflation will average around 2.4% over the next five years.

The 10-year TIPS breakeven rate USBEI10Y=RR was last at 2.292%, up from Wednesday's 2.274%.

December 8 Thursday 10:10AM New York / 1510 GMT

Price

Current Net

Yield % Change

(bps) Three-month bills US3MT=RR 4.1975

4.3009

0.000 Six-month bills US6MT=RR

4.5525

4.7239

0.015 Two-year note US2YT=RR

100-97/256 4.2973

0.041 Three-year note US3YT=RR

101-68/256 4.0373

0.059 Five-year note US5YT=RR

100-212/256 3.6911

0.077 Seven-year note US7YT=RR

101-154/256 3.6131

0.079 10-year note US10YT=RR

105-104/256 3.4765

0.069 20-year bond US20YT=RR

104-48/256 3.701

0.054 30-year bond US30YT=RR

110-40/256 3.4529

0.039

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap

32.00

0.50

spread

U.S. 3-year dollar swap

11.25

0.25

spread

U.S. 5-year dollar swap

4.00

0.75

spread

U.S. 10-year dollar swap

-2.25

1.25

spread

U.S. 30-year dollar swap

-36.50

2.50

spread


Reporting by Gertrude Chavez-Dreyfuss; editing by Barbara Lewis

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