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TREASURIES-U.S. bond yields fall before ISM, FOMC minutes

NEW YORK, Jan 3 (Reuters) - U.S. Treasury yields slipped on Wednesday in advance of data on domestic manufacturing activity and minutes of last month's Federal Reserve meeting, where policy makers decided to raise short-term interest rates for a third time in 2017. Bond markets around the world rebounded from Tuesday's selloff tied to hawkish comments from two European Central Bank officials, which propelled the 10-year German Bund yield to a two-month peak and the five-year U.S. yield to its highest level since April 2011. Some investors said Tuesday's yield rise was partly a reversal of the drop linked to typical year-end buying. "A majority of yesterday's move was a move back of what happened over the year-end holiday," said Jason Celente, senior portfolio manager at Insight Investment in New York. At 9:27 a.m. (1437 GMT), benchmark 10-year Treasury yield was down 2 basis points at 2.443 percent, while the two-year yield dipped 0.4 basis point to 1.919 percent, not far below a nine-year peak. Tuesday's yield spike also stemmed from bond dealers hedging the slate of corporate bonds they underwrite this week, analysts said. Companies are expected to sell $35 billion in investment-grade corporate bonds this week, according to IFR, a Thomson Reuters unit. Evidence of further expansion in the factory sector will likely support the notion of steady U.S. economic growth, perhaps allowing the Fed to increase rates up to three times in 2018. The Institute for Supply Management will release its January report on manufacturing at 10 a.m. (1500 GMT). Analysts polled by Reuters forecast the ISM factory index likely came in at 58.1 in December, little changed from 58.2 in November. Investors are also awaiting clues on the path of future rate hikes in the minutes of the Dec. 12-13 meeting of the Federal Open Market Committee (FOMC). They hope the minutes, set for release at 2 p.m. (1900 GMT), will provide a better sense of the FOMC's view on business activity before the passage of the biggest rewrite of the U.S. tax code in 30 years. "They want to know what the Fed was thinking about before tax reform was passed," Celente said. January 3 Wednesday 9:44AM New York / 1444 GMT Price

US T BONDS MAR8 152-10/32 18/32 10YR TNotes MAR8 123-220/256 6/32 Price Current Net Yield % Change

(bps)

Three-month bills 1.3875 1.4117 -0.035 Six-month bills 1.5575 1.5917 -0.018 Two-year note 99-234/256 1.9192 -0.004 Three-year note 99-164/256 2.0011 -0.014 Five-year note 99-122/256 2.2364 -0.014 Seven-year note 99-76/256 2.3597 -0.022 10-year note 98-80/256 2.4434 -0.022 30-year bond 99-68/256 2.7863 -0.024 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 52.30 -1.75 30-year vs 5-year yield 55.00 -1.60

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 17.75 -0.50

spread

U.S. 3-year dollar swap 18.25 -0.25

spread

U.S. 5-year dollar swap 3.00 -0.25

spread

U.S. 10-year dollar swap -2.50 -0.25

spread

U.S. 30-year dollar swap -21.75 -0.25

spread

(Reporting by Richard Leong; Editing by David Gregorio)