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TREASURIES-U.S. yields flat as FOMC minutes support gradual rate-hike view

* Treasury yields hold at lower levels following Dec FOMC minutes

* Fed sees future rate rises guided by inflation, fiscal stimulus

* U.S. Dec ISM manufacturing data beat expectations

* U.S. 2-year yield touches 9-year peak

NEW YORK, Jan 3 (Reuters) - U.S. Treasury yields were little changed on Wednesday as traders stuck to their view that the Federal Reserve would gradually increase interest rates in 2018 based on the minutes of the central bank's December policy meeting. Fed policy-makers showed worry over the fate of currently low inflation and saw recent tax changes as providing a boost to consumer spending, according to the minutes of the U.S. central bank's last policy meeting on Dec. 12-13 released on Wednesday.

The details of the meeting, at which the Fed raised interest rates for the fifth time since the 2008 financial crisis, also showed that officials may be less certain about the impact of fiscal stimulus on raising inflation rates than investors had thought. "I think people had taken the two dissents and the lack of a firmer policy path to suggest that there had been an increased number of participants worried about the lack of inflation or the lack of wage growth with declining unemployment, and I dont really see that," said Michael Gapen, chief U.S. economist at Barclays in New York. Bond markets around the world stabilized 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 stronger-than-forecast report on U.S. manufacturing from the Institute for Supply Management at 10:00 a.m. EST (1500 GMT) briefly raised yields by 2 basis points, but those gains were erased by day-end. The industry group's index on U.S. factory activity unexpectedly rose to 59.7 last month from 58.2 in November. Analysts polled by Reuters forecast the ISM factory index likely came in at 58.1. 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 market's relatively muted reaction, however, indicated investors may not be convinced the strong data will push up inflation rates. At 3:34 p.m. (2034 GMT), the benchmark 10-year Treasury yield was down 1.8 basis points at 2.447 percent, while the 30-year yield was down 2.5 basis points at 2.785 percent, both compared to Tuesday's close. The two-year yield reached a nine-year high at 1.939 percent. It was last down 0.8 basis point at 1.931 percent.

January 3 Wednesday 3:40PM New York / 2040 GMT Price

US T BONDS MAR8 152-8/32 0-16/32 10YR TNotes MAR8 123-200/256 0-24/256 Price Current Net Yield % Change

(bps)

Three-month bills 1.3775 1.4015 -0.046 Six-month bills 1.5575 1.5917 -0.018 Two-year note 99-226/256 1.9353 0.012 Three-year note 99-154/256 2.0148 0.000 Five-year note 99-110/256 2.2465 -0.003 Seven-year note 99-62/256 2.3683 -0.014 10-year note 98-72/256 2.4471 -0.018 30-year bond 99-76/256 2.7847 -0.025

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 18.50 0.00

spread

U.S. 5-year dollar swap 3.50 0.25

spread

U.S. 10-year dollar swap -1.75 0.50

spread

U.S. 30-year dollar swap -20.75 0.75

spread

(Reporting by Richard Leong and Kate Duguid; Editing by David Gregorio, Nick Zieminski and Susan Thomas)