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TREASURIES-U.S. two-year yields hit 9-year high; curve flattest in 10 years

NEW YORK, Nov 16 (Reuters) - U.S. Treasury two-year yields

hit a nine-year high on Thursday as risk appetite recovered

globally and a batch of neutral to solid economic reports put the Federal Reserve on track to raise interest rates in 2018. The rise in two-year yields pushed the curve to its flattest in a decade. "This morning's economic data were neutral to OK, as opposed to scary that may in any way indicate that the U.S. economy was overheating," said Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee. U.S. industrial output rose 0.9 percent, a higher-than-expected rise in October as industries affected by recent hurricanes resumed normal operations. Apart from that, U.S. jobless claims data, while increasing in the latest week, showed a firmer underlying trend.

The reports helped flatten the yield curve. The gap between U.S. 2-year note and U.S. 10-year note yields contracted to 63.2 basis points, the tightest since November 2007. The difference in five-year and 30-year yields narrowed to 72.4 basis points, the flattest since December 2011. A flat yield curve reflects expectations of further interest rate increases. The Federal Reserve has raised borrowing costs twice this year and is expected to boost rates again next month. It has forecast three rate hikes in 2018. In late morning trading, the 10-year Treasury yield rose to 2.350 percent, from 2.335 percent late on Wednesday. U.S. two-year yields climbed to a nine-year peak of 1.716 percent, from 1.691 percent on Wednesday. U.S. 30-year bond yields rose to 2.791 percent, from Wednesday's 2.781 percent.

November 16 Thursday 11:06AM New York / 1606 GMT Price

US T BONDS DEC7 153-27/32 -0-5/32 10YR TNotes DEC7 124-232/256 -0-36/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 1.2425 1.2637 0.008 Six-month bills 1.375 1.4038 0.016 Two-year note 99-152/256 1.7122 0.025 Three-year note 99-200/256 1.8254 0.024 Five-year note 99-180/256 2.0633 0.025 Seven-year note 100-20/256 2.2377 0.020 10-year note 99-28/256 2.3505 0.016 30-year bond 99-48/256 2.7902 0.009

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 17.50 0.25

spread

U.S. 3-year dollar swap 16.50 0.25

spread

U.S. 5-year dollar swap 5.50 0.50

spread

U.S. 10-year dollar swap -0.75 0.50

spread

U.S. 30-year dollar swap -23.75 0.25

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)