TREASURIES-Yields rise as market eyes debt ceiling, jobs data

By Karen Pierog CHICAGO, Oct 4 (Reuters) – U.S. Treasury yields rose on Monday as the market fretted about the lack of a debt ceiling fix in the U.S. Congress and looked ahead to the release later this week of September employment data, which could pave the way for the tapering of Federal Reserve asset purchases. The benchmark 10-year yield, which last week rose to its highest level since June at 1.567%, was last up 2.4 basis points at 1.491%. Yields on the shortest end of the curve remained elevated as the U.S. Treasury eyed Oct. 18 as when it might run out of cash, potentially leading to a default, without a debt ceiling resolution. The yield on one-month Treasury bills, which spiked to 0.1240% on Friday, hit a session high of 0.112% on Monday. Republicans have so far refused to aid Democrats, who control Congress and the White House, in either suspending or raising the debt ceiling after its two-year suspension ended in late July. George Goncalves, head of U.S. macro strategy at MUFG in New York, said that with a debt ceiling showdown looming, the market was still dealing with last week’s march higher in yields. “Until proven otherwise, people are going to be defensive because the weaker longs that got into these positions during the rates trade between August and early September, they’re under water and I don’t think everybody’s able to square up that positioning in a matter of a week,” he said. The market’s main focus is on Friday’s September employment report. Fed Chair Jerome Powell has said the central bank could begin reducing its $120 billion in monthly bond purchases in November as long as U.S. job growth through September is “reasonably strong.” Goncalves said the market is bracing for a decent jobs report that would meet the Fed’s criteria for tapering. “It has to be a really amazing number for it to break us out of the high (in the 10-year Treasury yield) we saw last week,” he added. The five-year note yield, which is more sensitive to intermediate interest rate hikes, was last up 1.6 basis points at 0.949%. A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last 1.68 basis points steeper at 121.44 basis points. October 4 Monday 10:23AM New York / 1423 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0375 0.038 0.000 Six-month bills 0.05 0.0507 0.000 Two-year note 99-241/256 0.2796 0.016 Three-year note 99-160/256 0.5034 0.018 Five-year note 99-164/256 0.949 0.016 Seven-year note 99-204/256 1.2805 0.020 10-year note 97-204/256 1.491 0.024 20-year bond 95-204/256 2.0076 0.027 30-year bond 98-128/256 2.0675 0.028 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.50 -1.25 spread U.S. 3-year dollar swap 13.50 -0.75 spread U.S. 5-year dollar swap 8.00 -0.75 spread U.S. 10-year dollar swap 1.00 -0.50 spread U.S. 30-year dollar swap -26.75 -0.25 spread (Reporting by Karen Pierog; Editing by Dan Grebler)