TREASURIES-U.S. bond market rout bleeds into February

* U.S. 30-year yield breaks above 3 pct for first time since May U.S. economy expanding at 5.4 pct in Q1 - Atlanta Fed

* Further yield curve flattening is expected to resume

* U.S. Treasuries posted worst month in over a year

(Updates market action, adds quote) NEW YORK, Feb 1 (Reuters) - The U.S. Treasuries market started February on a sour note with the 10-year yield hitting a near four-year peak on Thursday as investors booked profits on curve-related bets ahead of Friday's jobs report. U.S. government bonds came off their worst month since November 2016. They produced nearly a 1.4 percent loss in January, according to an index compiled by Bloomberg and Barclays. On Wednesday, the spread between longer-dated yields and short-dated ones also contracted to the tightest level in over a decade after the U.S. Treasury Department favored selling more short-dated debt than longer-dated issues to finance the projected rise in its budget deficit. Expectations the Federal Reserve would raise interest rates further in 2018 due to an improving economy stoked the allure of curve-flattening trades last month. The spread between five-year and 30-year Treasury yields widened to 44 basis points, a day after it touched nearly 41 basis points, a level not seen since August 2007, according to Tradeweb. On the other hand, Mike Lorizio, head of Treasuries trading at Boston-based Manulife Asset Management, said he expects the curve-flattening move to resume once the profit-taking subsides. "Further flattening of the curve seems inevitable with the supply coming and more Fed rate hikes," he said. The Treasury said on Wednesday it planned faster growth in two-year and three-year debt issuance versus the rise in longer-dated supply. Benchmark 10-year Treasury yields reached a fresh near four-year high at 2.786 percent. It was last at 2.784 percent, up 6 basis points on the day, Reuters data showed. The 30-year bond yield rose above the 3 percent mark to its highest level since last May. Despite the spike in longer-dated yields, analysts said a further increase will likely be limited by buying from bargain-minded investors. "Long-end yields will still be very well-behaved," said Matt Freund, head of fixed income strategies at Calamos Investments in Chicago.

On the data front, the Institute for Supply Management said its index on U.S. manufacturing activity slipped less than expected to 59.1 in January. The Commerce Department reported construction spending grew 0.7 percent to a record high of $1.25 trillion in December. Solid readings on manufacturing and investments led the Atlanta Federal Reserve to lift its estimate on gross domestic product for the first quarter to 5.4 percent, which would be the strongest quarter growth reading since late 2009. Still traders await the government payrolls report due at 8:30 a.m. (1330 GMT) on Friday, which may reinforce expectations on whether wage growth is gaining traction amid a tight labor market, analysts said. February 1 Thursday 3:26PM New York / 2026 GMT Price

US T BONDS MAR8 146-11/32 -1-15/32 10YR TNotes MAR8 121-40/256 -0-108/25


Price Current Net Yield % Change


Three-month bills 1.4675 1.4934 0.028 Six-month bills 1.61 1.6457 -0.018 Two-year note 99-176/256 2.1609 0.016 Three-year note 99-24/256 2.3194 0.030 Five-year note 99-26/256 2.5678 0.042 Seven-year note 98-156/256 2.7197 0.057 10-year note 95-116/256 2.784 0.064 30-year bond 94-208/256 3.015 0.074


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.25 0.50


U.S. 3-year dollar swap 18.25 0.00


U.S. 5-year dollar swap 8.00 0.75


U.S. 10-year dollar swap 3.25 0.50


U.S. 30-year dollar swap -12.25 0.25


(Reporting by Richard Leong Editing by Chizu Nomiyama)