TREASURIES-Long-date yields jump on strong economy, Fed hawkishness

(Recasts headline, lead, adds analyst quote, updates table, yields) NEW YORK, Oct 3 (Reuters) - U.S. Treasury yields reached multiyear peaks, with the 10-year yield at its highest since 2011 after economic data on Wednesday bolstered the case for the Federal Reserve to raise rates in December and beyond. The yield on the benchmark 10-year note made its largest daily jump since the U.S. presidential election in November 2016 as U.S. service sector activity hit a 21-year high and the ADP private payrolls data for September came in stronger than expected. "This is a bigger reaction to economic data than anything we've seen lately," said Gene Tannuzzo, senior portfolio manager at Columbia Threadneedle Investments. The upbeat reports on Wednesday are likely keep the Fed on track to raise interest rates again in December and suggest the central bank's tightening policy is unlikely to end anytime soon. The Fed increased rates last week for the third time this year. Yields were on the move again late on Wednesday following a speech by Powell in which he said the U.S. economy can expand for "quite some time." Early on Wednesday, Fed policy maker Charles Evans, who is among the decision-making committee's most dovish members, indicated he backed a December rate hike, saying the likely path higher for U.S. rates seemed "about as clear as you could write up," at present. At the long end of the curve, the 30-year yield rose more than 12.5 basis points to 3.342 percent, its highest since September 2014. Benchmark 10-year government yields , which reflect the market's view on the overall health of the economy, were up nearly 12 basis points at 3.183 percent, the highest since June 2011. Technical factors also contributed to the rise in 10- and 30-year yields. Traders were positioned to automatically sell off at certain "stops" determined by previous highs. "Stop losses could have been triggered as you approached and broke those levels and that could add fuel to the move that's already in place," said Brian Daingerfield, macro strategist, NatWest Markets. The yield on the 2-year note, which reflects market expectations of interest rate hikes, rose to 2.876 percent, its highest since June 2008, when it topped 3 percent. Yields on the 3- and 5-year notes rose to their highest since December 2007 and October 2008, respectively. The Institute for Supply Management (ISM) said its non-manufacturing activity index jumped 3.1 points to 61.6 last month, the highest reading since August 1997. This suggests September's nonfarm payrolls could surprise on the upside when the government publishes its more comprehensive employment report on Friday. Private payrolls rose by 230,000 jobs in September, the largest gain since February, the ADP National Employment Report showed, after an upwardly revised 168,000 increase in August.

October 3 Wednesday 4:51PM New York / 2051 GMT Price

US T BONDS DEC8 138-5/32 -2-11/32 10YR TNotes DEC8 117-244/256 -0-220/2

56

Price Current Net Yield % Change

(bps)

Three-month bills 2.18 2.2225 0.000 Six-month bills 2.3525 2.4139 0.011 Two-year note 99-194/256 2.876 0.061 Three-year note 99-102/256 2.9643 0.084 Five-year note 99-58/256 3.0432 0.100 Seven-year note 99-48/256 3.1303 0.118 10-year note 97-104/256 3.1832 0.127 30-year bond 93-168/256 3.3371 0.130

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 16.50 -0.50

spread

U.S. 3-year dollar swap 14.75 -1.00

spread

U.S. 5-year dollar swap 10.75 -0.75

spread

U.S. 10-year dollar swap 4.25 -1.00

spread

U.S. 30-year dollar swap -9.50 -1.25

spread

(Reporting by Kate Duguid; Editing by David Gregorio and Jonathan Oatis)