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TREASURIES OUTLOOK-North Korea and storm jitters spur U.S. bond market rally

* Fears of Irma slamming southern U.S. add to safety bids

* Debt ceiling concerns sour demand at 1-month bill auction

* Companies seen selling $35 bln-$40 bln in high-grade debt -IFR

* Fed should be cautious as inflation stays weak -Brainard

(Repeats to additional subscribers) NEW YORK, Sept 5 (Reuters) - The U.S. Treasuries market rallied on Tuesday, with the 10-year yield hitting a near 10-month low, as worries about further nuclear tests by North Korea and concerns about Irma, a powerful storm heading toward the southern United States, spurred safety bids. Yields on Treasury bills due in October remained elevated as investors await developments on whether U.S. lawmakers would reach a deal to increase the federal debt ceiling in a bid to avert a default. "It's definitely North Korea. It's partly Irma. You are looking at another possible hit to our economy," said Karl Haeling, vice president at Landesbank Baden-Wurttemberg in New York. Irma, rated as a highly dangerous Category 5 hurricane, could reach the southern U.S. this weekend only days after Harvey caused damages estimated in the tens of billions of dollars in Texas and Louisiana. The latest storm and possibly more on the way added to investors jitters after North Korea's nuclear test on Sunday, which the secretive country said was an advanced hydrogen bomb for a long-range missile, drawing global condemnation.

Traders and analysts said the decline in U.S. yields was partly offset by hedging activity tied to an expected $35 billion to $40 billion worth of investment-grade corporate bond supply to hit this week, according to IFR, a Thomson Reuters unit. In other events affecting yields, Federal Reserve Governor Lael Brainard said the U.S. central bank should be cautious about raising interest rates further as inflation has been stuck below the Fed's 2 percent goal. Brainard's perceived dovish remarks pushed the two-year yield, which is most sensitive to traders' view on Fed policy, to 1.290 percent, the lowest level in over three weeks. The yield on benchmark 10-year Treasury notes was down 9 basis points at 2.070 percent. Earlier on Tuesday the yield hit 2.065 percent, which was its lowest level since Nov. 10. Treasury yields posted their biggest one-day decline since May 17, when former FBI chief Robert Mueller was named as the special counsel to investigate possible collusion between President Donald Trump's 2016 presidential campaign and Russia.

U.S. financial markets were closed on Monday for the Labor Day holiday. Concerns whether the federal debt ceiling would be raised in time to avert a default resulted in a lousy one-month bill auction and the highest interest rate on one-month T-bills in nine years at 1.300 percent. Top Republicans and Democrats have hinted they would at least arrive at a temporary agreement to fund the government and increase the federal borrowing limit to prevent a shutdown and a default. September 5 Tuesday 3:48PM New York / 1948 GMT Price

US T BONDS DEC7 157-3/32 1-29/32 10YR TNotes DEC7 127-108/256 0-192/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 0.995 1.0112 0.000 Six-month bills 1.085 1.1059 0.010 Two-year note 99-234/256 1.294 -0.052 Three-year note 100-78/256 1.3938 -0.065 Five-year note 99-230/256 1.6463 -0.087 Seven-year note 99-224/256 1.8942 -0.092 10-year note 101-164/256 2.0665 -0.091 30-year bond 101-72/256 2.6874 -0.081

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 21.75 1.25

spread

U.S. 3-year dollar swap 18.75 0.75

spread

U.S. 5-year dollar swap 6.75 1.00

spread

U.S. 10-year dollar swap -5.25 0.00

spread

U.S. 30-year dollar swap -34.75 0.00

spread

(Reporting by Richard Leong; Editing by Paul Simao and Leslie Adler)