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TREASURIES-Yields at three-month highs on tapering speculation

Karen Brettell
Thursday, 5 Dec 2013 | 11:18 AM ET

* Yields highest since September on strong GDP, drop in jobless claims

* 10-yr yields break above technical support at 2.85 percent

* Fed buys $1.58 billion bonds due 2039 to 2043

NEW YORK, Dec 5 (Reuters) - U.S. Treasuries yields rose to three-month highs on Thursday after numbers on strong U.S. growth and decreasing claims for unemployment benefits added to expectations the Federal Reserve is more likely to pare bond purchases in coming months. Thursday's data comes before Friday's highly anticipated jobs report, which is expected to show that employers added 180,000 jobs in November, according to the median estimate of 90 economists polled by Reuters. Some traders are speculating the number could come in even stronger, with a gain of more than 200,000 jobs, and the data could be enough for the Federal Reserve to announce a pullback in its $85 billion-a-month bond purchase program sooner. "The bond market is saying tapering is coming," said Stan Shipley, bond strategist at ISI Group in New York. Benchmark 10-year Treasuries fell 8/32 in price to yield 2.87 percent, the highest since September 18, and breaking above technical support at 2.85 percent. Thirty-year bonds fell 5/32 in price to yield 3.91 percent. Many think the central bank is most likely to begin paring purchases in March, but an increasing number are betting on January as the data improves. Some even see an announcement at the Fed's December meeting as a possibility. "There are still people interpreting that the door is still open for a December taper next week out of the FOMC," said Sean Murphy, a Treasuries trader at Societe Generale in New York. A January announcement may be more likely, however, as the Fed may be hesitant to risk hurting liquidity heading into year-end, he added. Data on Thursday was bullish for the economy, showing that it grew faster than initially estimated in the third quarter as businesses aggressively accumulated stock, but underlying domestic demand remained sluggish. Gross domestic product grew at a 3.6 percent annual rate instead of the 2.8 percent pace reported earlier, the Commerce Department said. Atlanta Federal Reserve President Dennis Lockhart, who does not have a vote on the policymaking committee this year or next, warned against interpreting the data too optimistically. "I am not prepared to interpret the revised third quarter number as an indication that the economy is on a much stronger track. I think we're still on that relatively moderate growth track," he said on Thursday. The number of Americans filing new claims for unemployment benefits also unexpectedly fell last week, a hopeful sign for the labor market recovery. The Fed bought $1.58 billion in bonds due 2039 and 2043 on Thursday as part of its ongoing purchase program.