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TREASURIES-U.S. yields rise as Senate reaches deal to end shutdown

(Recasts, updates yields, table, adds quote)

* U.S. lawmakers strike deal to end government shutdown

* 10-year yields hit highest since July 2014

* 2-year yields hit highest since September 2008

NEW YORK, Jan 22 (Reuters) - Treasury yields rose on Monday after U.S. lawmakers reached a deal to reopen the federal government, three days into the shutdown. Yields recovered earlier intraday losses, rising to just below the multi-year highs set in early trading on Monday. The morning sell-off saw yields on the 10-year note hit three-and-a-half-year highs, while yields on the two-year note hit nine-year highs. Though highs were set, the market's movement on Monday was fairly muted. In spite of the volatile political situation, the margin between the two-year yield's low and high points was just 2 basis points. For the 10-year it was 4 basis points. "The market is taking it in stride. They think it's a little hiccup in daily government operations. The bigger picture of (the economy) and inflation is what will continue to drive markets," said Sean Simko, head of global fixed income management at SEI Investments Co in Oaks, Pennsylvania. U.S. senators voted to move forward on legislation that would reopen the federal government until Feb. 8, ending a three-day standoff between Democrats and President Donald Trump's Republicans over immigration and border security.

Prior to the announcement of the deal, analysts largely dismissed the U.S. government shutdown, saying it would not have a significant long-term impact on the world's largest economy. Their explanations for Monday's early highs included momentum from a significant sell-off on Friday, and weakness in European equities overnight. The market had "a little bit of a bounce from last Friday, which was a pretty ugly day," said Ward McCarthy, chief financial economist at Jefferies LLC in New York. Benchmark government yields hit 2.672 percent, the highest since July 2014, and was 2.665 percent at 2:22 p.m. ET (1922 GMT) above its last close at 2.639 percent. The 10-year maturity on Friday broke through its 2017 high of 2.64 percent, a key technical support level. Reaching that key technical level means that yields at or below 2.64 percent may indicate the market will hold those rates in the near term. If they move consistently above that level, the market will probably test the next highest mark of 2.75 percent. This week's schedule of data releases is light until Friday, when the first estimate of U.S. fourth-quarter gross domestic product will be reported. In afternoon trading, the U.S. 2-year note yield was at 2.073 percent, after hitting 2.082 percent earlier in the day, its highest since September 2008.

January 22 Monday 2:26PM New York / 1926 GMT Price

US T BONDS MAR8 148-22/32 -0-10/32 10YR TNotes MAR8 122-24/256 -0-48/25

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Price Current Net Yield % Change

(bps)

Three-month bills 1.405 1.4293 -0.005 Six-month bills 1.59 1.6248 0.000 Two-year note 99-160/256 2.0733 0.012 Three-year note 99-102/256 2.2098 0.020 Five-year note 98-116/256 2.4595 0.023 Seven-year note 97-216/256 2.5915 0.023 10-year note 96-116/256 2.663 0.024 30-year bond 96-120/256 2.9283 0.016

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 20.00 0.25

spread

U.S. 3-year dollar swap 19.50 0.25

spread

U.S. 5-year dollar swap 7.25 -0.25

spread

U.S. 10-year dollar swap 4.25 -1.25

spread

U.S. 30-year dollar swap -11.50 -0.75

spread

(Reporting by Kate Duguid; Editing by Frances Kerry and Chizu Nomiyama)