TREASURIES-Yields hit three-month highs on Fed tapering views

Karen Brettell
Thursday, 5 Dec 2013 | 2:58 PM ET

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

* 10-year 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 stronger-than-expected growth and jobs data boosted views the Federal Reserve will soon pare its bond-buying program, with investors looking to key labor market data due on Friday. The U.S. economy grew at a 3.6 percent annual rate in the third quarter instead of the 2.8 percent pace reported a month ago, data showed. In addition, a report from the Labor Department showed initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 298,000 last week. The data came a day before the U.S. employment 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 5/32 in price to yield 2.859 percent. Yields reached as high as 2.874 percent earlier in the session, the highest since Sept. 18 and breaking above technical support at 2.85 percent. Thirty-year bonds fell 3/32 in price to yield 3.910 percent. Many think the central bank is most likely to begin paring purchases in March, but an increasing number are betting on action in January as U.S. economic data improves. Some even see an announcement at the Fed's Dec. 17-18 meeting as a possibility. "There are still people interpreting that the door is still open for a December taper," 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 inventories, but underlying domestic demand remained sluggish. Atlanta Federal Reserve President Dennis Lockhart, who does not have a vote on the policymaking committee this year or next, warned against attaching too much importance to the data. "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.