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TREASURIES-Yields jump on U.S. manufacturing data, hawkish policy bets

* ISM manufacturing rises to 57.8 in June, above expected 55.2

* Bets on tighter global central bank policy pressure yields

* 2-year yields hit highest in more than 8 years

* Friday's U.S. employment report looms

NEW YORK, July 3 (Reuters) - U.S. Treasury yields rose on Monday, with two-year yields touching their highest in more than eight years after U.S. manufacturing data boosted expectations that the Federal Reserve would raise interest rates again this year as other central banks shift toward tighter monetary policy. The Institute for Supply Management (ISM) said its index of national factory activity rose to 57.8 last month from 54.9 in May. Economists polled by Reuters had expected a reading of 55.2. The expansion in manufacturing, which accounts for roughly 12 percent of the overall U.S. economy, combined with hawkish comments last week from the heads of the European Central Bank and the Bank of England, pressured yields higher. Analysts also said traders were selling Treasuries in anticipation of Friday's U.S. June employment report, which could push yields higher if jobs and wage growth beat expectations. "The remarks from last week from central bankers and the ISM data from today help continue to pressure rates higher, and if we do get a solid number on Friday, that could keep the sell-off going," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. Short-dated U.S. Treasury yields, which are considered most sensitive to Fed rate policy, surged. Two-year yields touched 1.422 percent to mark their highest since early June 2009, while three-year yields touched their highest in more than three months of 1.593 percent. Benchmark 10-year yields hit a nearly seven-week high of 2.345 percent, while 30-year yields touched their highest in nearly three weeks of 2.869 percent. Five- and seven-year yields hit their highest since early May of 1.937 percent and 2.191 percent. Analysts said trading volume was thin, with the U.S. bond market closing early at 2 p.m. EDT (1800 GMT) ahead of the July 4 Independence Day holiday. "(The manufacturing data) reinforces the risk of a tighter Fed," said Bruno Braizinha, interest rates strategist at Societe Generale in New York. Braizinha added that since expectations of another rate hike from the Fed had bottomed out in recent sessions, there was a greater risk of traders pricing in higher expectations of another Fed rate hike this year if Friday's employment report beats expectations. A raft of weak U.S. economic data, including soft inflation readings, had reduced expectations of another rate rise in recent weeks.

July 3 Monday 11:15AM New York / 1515 GMT Price

US T BONDS SEP7 152-29/32 -0-25/32 10YR TNotes SEP7 125-20/256 -0-116/2

56

Price Current Net Yield % Change

(bps)

Three-month bills 1.0175 1.0341 0.013 Six-month bills 1.1375 1.1597 0.013 Two-year note 99-170/256 1.4221 0.036 Three-year note 99-188/256 1.5926 0.047 Five-year note 99-30/256 1.9366 0.050 Seven-year note 98-196/256 2.1915 0.053 10-year note 100-60/256 2.3481 0.046 30-year bond 102-148/256 2.8707 0.032

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 22.00 -1.25

spread

U.S. 3-year dollar swap 18.75 -1.25

spread

U.S. 5-year dollar swap 6.25 -0.25

spread

U.S. 10-year dollar swap -3.00 -0.25

spread

U.S. 30-year dollar swap -29.50 0.50

spread

(Reporting by Sam Forgione; Editing by Dan Grebler)