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TREASURIES-Yields advance after strong U.S. services sector data

(Recasts, adds comments, byline, updates prices)

* U.S. ISM non-manufacturing index rises in September

* U.S. private-sector payrolls top expectations

* Focus on U.S. non-farm payrolls

NEW YORK, Oct 4 (Reuters) - U.S. Treasury debt yields rose on Wednesday after a measure of U.S. services sector activity hit a 12-year high, offseting some concerns about an upcoming payrolls report. U.S. long-dated yields, which move inversely to prices, hit session highs after the data. The non-manufacturing index as measured by the Institute for Supply Management rose to 59.8 last month from 55.3 in August. The consensus expectation was for a reading of 55.5.

"The surge in the ISM non-manufacturing index is a clear sign that the economy is recovering quickly from any hurricane-related disruption and that the underlying pace of (gross domestic product) growth remains strong," said Michael Pearce, U.S. economist, at Capital Economics in New York. Yields were lower for most of the session, weighed by uncertainty surrounding the upcoming U.S. non-farm payrolls report, which was expected to reflect hurricanes that hit the United States last month. "The level of uncertainty surrounding payrolls has been high," said Bruno Braizinha, interest rates strategist at Societe Generale in New York. "Economists find it hard to understand the effects of the hurricane on payrolls. Our economists actually think that hurricanes will weigh significantly on payrolls," he added. Wall Street economists expect just 90,000 new U.S. jobs for September, down from 156,000 in August, according to a Reuters poll. A report by payrolls processor ADP showed that U.S. private employers added 135,000 jobs in September, exceeding economists' expectations despite Hurricanes Harvey and Irma significantly impacting smaller retailers. The jobs gain reported by ADP was the smallest monthly increase since October 2016. "The details showed relatively broad health with most employers adding (jobs) with the exception of very small businesses," said Aaron Kohli, rates strategist at BMO Capital Markets in New York. But Kohli pointed out that it is difficult to determine what the ADP number implies about Friday's jobs report. "The on-consensus (ADP) read leaves the market still expecting a soft non-farm payrolls due to hurricane effects," he said. In mid-morning trading, the benchmark 10-year U.S. Treasury note yield was at 2.339 percent, up from 2.332 percent late on Tuesday, while the 30-year yield was at 2.886 percent, compared with Tuesday's 2.872 percent. U.S. two-year note yields were up slightly at 1.479 percent.

October 4 Wednesday 10:27AM New York / 1427 GMT Price

US T BONDS DEC7 152-13/32 -0-7/32 10YR TNotes DEC7 125-72/256 -0-12/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 1.0525 1.07 0.008 Six-month bills 1.1925 1.2164 0.005 Two-year note 99-204/256 1.4791 0.004 Three-year note 99-78/256 1.6176 0.003 Five-year note 99-190/256 1.9295 0.007 Seven-year note 99-188/256 2.1661 0.007 10-year note 99-60/256 2.3372 0.005 30-year bond 97-88/256 2.8832 0.011

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 26.75 0.75

spread

U.S. 3-year dollar swap 23.75 0.75

spread

U.S. 5-year dollar swap 8.00 0.25

spread

U.S. 10-year dollar swap -4.25 0.25

spread

U.S. 30-year dollar swap -32.50 0.25

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith Mazzilli)