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TREASURIES-Yields sag as weak U.S. jobs data fuels Fed rate cut talk

Richard Leong

* U.S. 10-year yields hit lowest since September 2017

* End to global trade tension remains elusive

* Futures imply traders see Fed cutting rates 75 bps by year-end

(Updates market action, adds quote) NEW YORK, June 7 (Reuters) - U.S. Treasury yields tumbled on Friday, with 10-year yields hitting their lowest since September 2017 as domestic employers hired far fewer workers than expected in May, raising bets the Federal Reserve would lower interest rates. Analysts blamed the pullback in hiring on escalating trade tensions between the United States and its trading partners. The U.S. Labor Department said employers added 75,000 workers last month, well below the 185,000 projected by economists polled by Reuters and a downwardly revised 224,000 in April. "The number is quite startling," said Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston. "It might still be an anomaly. There is still a decent amount of strength in the labor market." The weak payroll reading sparked buying in U.S. government debt, fed by expectations the Federal Reserve might lower short-term rates 75 basis points before year-end. A couple of top Wall Street firms now expect the Fed may lower rates by 50 basis points at its July policy meeting. "The Fed wont react to one report, even one as important as payrolls," Sal Guatieri, senior economist at BMO Capital Markets, wrote in a research note. "But given the broadening trade war, easing labour cost pressures (despite a tight labour market) and already-low inflation, it wont take much more weakness in employment, in particular, to spur a rate cut." This week, a number of Fed officials including Chairman Jerome Powell hinted they were open to lower interest rates to preserve the U.S. expansion, which would be the longest in history by this summer. Trade tensions remained high. The White House said its 5% tariff on Mexican imports was on track for Monday. Chinese President Xi Jinping called for world powers to protect the global multilateral trade system. In late U.S. trading, the yields on U.S. 10-year Treasury notes were 3.70 basis points lower at 2.086%. They touched 2.053% after the payrolls report, their lowest since September 2017. Two-year yields were 3.20 basis points lower at 1.849%. They fell to 1.775%, which was just above their lowest since December 2017. Most of the yield curve steepened for a second week, as short-dated yields have tumbled on expectations of multiple rate cuts from the Fed in the next 12 months, analysts said. The spread between two-year and 10-year yields grew nearly 3 basis point on the week to end at over 23 basis points. It touched nearly 31 basis points on Wednesday, its widest in seven months.

Friday, June 7, at 1517 EDT (1917 GMT): Price

US T BONDS SEP9 154-18/32 33/3210YR TNotes SEP9 127-64/256 10/32Price Current NetYield % Change

(bps)

Three-month bills 2.23 2.2795 -0.033Six-month bills 2.1025 2.1541 -0.069Two-year note 100-138/256 1.8453 -0.036Three-year note 100-226/256 1.814 -0.031Five-year note 100-186/256 1.8463 -0.037Seven-year note 101-8/256 1.966 -0.03810-year note 102-156/256 2.0827 -0.04030-year bond 106-72/256 2.5727 -0.048YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 23.60 -0.4030-year vs 5-year yield 72.60 -0.55

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 6.75 2.00

spread

U.S. 3-year dollar swap 4.25 1.50

spread

U.S. 5-year dollar swap 3.00 1.00

spread

U.S. 10-year dollar swap -1.25 0.50

spread

U.S. 30-year dollar swap -26.50 0.75

spread

(Reporting by Richard Leong Graphic by Matthew Weber; Editing by David Gregorio and Tom Brown)