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TREASURIES-Yields advance as Fed officials boost December U.S. rate hike

* Fed officials support rate hike in December

* December rate hike prospects now at 80 pct

(Recasts, adds comment, updates prices) NEW YORK, Oct 5 (Reuters) - U.S. Treasury debt yields rose on Thursday, bolstered by continued gains in the U.S. stock market as well as bullish comments on the economy from Federal Reserve officials that supported another rate hike in December. Philadelphia Federal Reserve Bank President Patrick Harker, a voter on the Federal Open Monetary Policy Committee, said on CNBC he still expects a rate increase in December. San Francisco Fed President John Williams echoed the same sentiment. He said he does not need to see inflation move higher to support another interest rate increase this year as long as other economic data points to continued economic strength. Williams is a voter on the FOMC in 2018. Following the Fed officials' comments, the rate futures market has priced in a more than 80 percent chance of a rate increase in December, according to CME's FedWatch. Investors are also looking to Friday's U.S. non-farm payrolls report, even though the headline number could be distorted by the hurricanes that hit the United States last month. Wall Street economists expect just 90,000 new U.S. jobs for September, down from 156,000 in August, according to a Reuters poll. Lou Brien, market strategist, at DRW Trading in Chicago said he was not sure about the U.S. payrolls' impact on financial markets given the expected distortions from the hurricanes. "As far as the Fed is concerned, the labor market is a done deal. What could shift the Fed's view would be any change in inflation," said Brien. Long-dated short positions in Treasuries have been stretched and investors looked to square up ahead of a potentially volatile trading day on Friday because of the payrolls number, analysts said. U.S. 10-year note yields had risen about 20 basis points in September, while 30-year bond yields climbed 13 basis points, bolstered by an uptick in inflation and a more bullish economic outlook from the Federal Reserve. In late trading, the benchmark 10-year U.S. Treasury note yield was at 2.349 percent, up from 2.332 percent late on Wednesday, while the 30-year yield was at 2.891 percent, up from 2.877 percent. U.S. two-year note yields were up at 1.495 percent, from 1.479 percent on Wednesday. Data on Thursday showed underlying strength in the U.S. economy. The number of Americans filing for unemployment benefits fell more than expected last week to 260,000 for the week ended Sept. 30. The U.S. trade deficit also narrowed for the month of August to $42.4 billion, the smallest since September 2016.

October 5 Thursday 3:08PM New York / 1908 GMT Price

US T BONDS DEC7 152-9/32 -0-9/32 10YR TNotes DEC7 125-48/256 -0-36/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 1.0525 1.0699 0.000 Six-month bills 1.195 1.2189 0.003 Two-year note 99-196/256 1.4953 0.016 Three-year note 99-70/256 1.6288 0.014 Five-year note 99-170/256 1.946 0.022 Seven-year note 99-164/256 2.1807 0.022 10-year note 99-32/256 2.3498 0.018 30-year bond 97-44/256 2.892 0.015

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 26.75 -0.25

spread

U.S. 3-year dollar swap 24.00 -0.25

spread

U.S. 5-year dollar swap 7.75 -0.50

spread

U.S. 10-year dollar swap -4.75 -0.50

spread

U.S. 30-year dollar swap -32.75 -0.25

spread

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