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TREASURIES-In-line jobs data flattens U.S. yield curve

Richard Leong

* U.S. payrolls grow 164,000 in July, lower than June

* Renewed U.S.-China trade tensions keep bond yields low

* Futures suggest traders see a U.S. rate cut in September

(Updates market action, adds quote) NEW YORK, Aug 2 (Reuters) - The spread between short- and long-dated U.S. Treasuries yields contracted on Friday as data pointed to slower jobs growth in July, but a slight gain in wages soothed concerns about consumer spending. The mixed snapshot on the jobs market did not change traders' expectations that the Federal Reserve would lower key lending rates in September following the quarter-point cut it implemented on Wednesday. Investors are more jittery about a downturn in trade developments between Washington and Beijing. On Thursday, U.S. President Donald Trump threatened to impose 10% tariffs on $300 billion worth of Chinese imports, starting Sept. 1, in a bid to pressure China for a trade deal.

Trump's move roiled financial markets, sending stock and oil prices reeling. Investors rushed into Treasuries as a safe haven, pushing benchmark 10-year yields to their lowest levels since Nov. 9, 2016 - the day after Trump's presidential win. "Indeed, job markets are important in the new world of consumption-driven economic conditions, but the sometimes-backward-looking nature of the data in the face of renewed trade tensions makes todays report less robust as a singular market influence than many reports in past years," said Rick Rieder, BlackRock's chief investment officer of global fixed income. The Labor Department said on Friday nonfarm payrolls increased by 164,000 in July, fewer than a revised 193,000 gain the previous month but in line with economists' expectations. Average hourly earnings rose 0.3% in July, matching the increase in June and stronger than the 0.2% gain forecast by analysts. At 11:07 a.m. (1507 GMT), the spread between two-year and 10-year yields narrowed 2.5 basis points to 13.2 basis points after being as tight as 10.5 basis points earlier Friday. The gap between three-month bill rates and 10-year yields grew to 22 basis points from 19 basis points. The inversion between the two maturities, which began May 23, is seen as an omen of a recession. Yields on benchmark 10-year Treasury notes were 1.866%, down 2.60 basis points from late on Thursday. They fell to 1.832% earlier Friday, the lowest since November 2016. Interest rates futures implied traders see a 91% chance the Fed would lower rates at its Sept. 17-18 policy meeting, retreating from 100% shortly before the release of the July jobs data, according to CME Group's FedWatch program. August 2 Friday 11:10AM New York / 1510 GMT Price

US T BONDS SEP9 158-3/32 13/3210YR TNotes SEP9 128-196/256 3/32Price Current NetYield % Change

(bps)

Three-month bills 2.0225 2.0663 -0.019Six-month bills 1.96 2.0067 -0.039Two-year note 100-8/256 1.7339 0.012Three-year note 100-46/256 1.687 0.013Five-year note 100-88/256 1.6778 0.002Seven-year note 100-192/256 1.7604 -0.00910-year note 104-124/256 1.8708 -0.02130-year bond 109-168/256 2.4181 -0.023YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 13.50 -2.1030-year vs 5-year yield 74.10 -1.75

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 2.00 -2.25

spread

U.S. 3-year dollar swap -1.50 -2.25

spread

U.S. 5-year dollar swap -3.75 -1.50

spread

U.S. 10-year dollar swap -8.75 -0.25

spread

U.S. 30-year dollar swap -38.75 -0.50

spread

(Reporting by Richard Leong; Editing by Bernadette Baum and Dan Grebler)