CASH-Long-term US yields slide from more than three-month highs


    * U.S. long-dated yields hit more than three-month highs
    * U.S. ADP jobs report in September was better than expected
    * Markets keeping an eye on debt ceiling as deadline looms

 (Adds new comment, U.S. data, Treasury table, updates prices)
    By Gertrude Chavez-Dreyfuss and Tom Westbrook
    NEW YORK/SINGAPORE, Oct 6 (Reuters) - U.S. Treasury
benchmark 10-year yields fell from more than three-month peaks
on Wednesday, as investors pulled back from recent selling to
buy the note, but the outlook for rates remained tilted to the
upside amid optimism about growth.
    A surge in yields earlier in the session had reflected
investor concerns that soaring energy prices could drive broader
inflationary pressures.
    U.S. crude futures hit an almost seven-year high on
Wednesday amid a global fuel crunch that has unnerved markets
and sent coal and natural gas prices soaring.
    U.S. Treasury 20-year and 30-year yields also retreated from
their June highs.
    An earlier report showing U.S. private payrolls increased
more than expected in September to 568,000 jobs pushed Treasury
yields higher. But that was short-lived as buyers
stepped in to take advantage of Treasuries' oversold conditions.
    "We have said all year that 10-year yields should be in the
1.75% to 2% by the end of the year," said Tony Rodriguez, head
of fixed income strategy at Nuveen. 
    "We're kind of heading in that direction. Our view is that
we'll get to that level, but probably at the low end, given that
over the summer, we saw some weakness related to the resurgence
of COVID," he added.
    The 10-year yield earlier in the global session
to 1.573%, but was down nearly 2 basis points at 1.5154%.
    Nominal yields have increased the last few weeks on
expectation that the Federal Reserve will soon begin tapering
asset purchases, and traders are awaiting more U.S. labor data
for clues as to the timing and tone of policy tightening.
    Yields on 20-year and 30-year
Treasuries also jumped to their highest since June. In
mid-morning trading, 20-year yields were down 2.3 basis points
at 2.0185%, while those in 30-year bonds slid 2.5 basis points
to 2.0746%.
    On Tuesday, breakeven inflation expectations on five-year
Treasury Inflation-Protected Securities (TIPS) rose
to 2.62%, the highest since late July and the same rate on
10-year TIPS hit 2.458%, the highest since June.
    Both breakeven inflation rates came slightly down on
    The earlier rise in longer-dated yields also steepened the
curve and the gap in yield between two-year and 10-year yields
 rose to 127 basis points, its widest since June. 
    By mid-morning, that yield curve had flattend to 121 basis
points as long-term rates fell.
    In the Treasury bills market, yields on the one-month
 rose 2 basis points to 0.1293% ahead of the Oct. 18
debt ceiling deadline, while those on 3-month bills were steady
at 0.0406%.
    Senate Democrats are set to try again on Wednesday to extend
the U.S. government's borrowing authority to head off a
catastrophic default, after President Joe Biden suggested they
could change the chamber's rules to bypass a Republican
    "We have seen the move away from short-term bills in
previous debt ceilings," said Nuveen's Rodriguez. "Right now,
the premium you're seeing in bills was not as high as the last
time. We still think that Congress will, as it always will,
raise the debt ceiling at the 11th hour."
      October 6 Wednesday 10:39AM New York / 1439 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.04         0.0406    0.000
 Six-month bills               0.055        0.0558    0.000
 Two-year note                 99-234/256   0.2935    0.006
 Three-year note               99-142/256   0.5279    0.006
 Five-year note                99-128/256   0.9781    0.000
 Seven-year note               99-160/256   1.3064    -0.009
 10-year note                  97-148/256   1.5154    -0.016
 20-year bond                  95-148/256   2.0214    -0.022
 30-year bond                  98-80/256    2.0761    -0.024
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.75         0.00    
 U.S. 3-year dollar swap        13.00         0.00    
 U.S. 5-year dollar swap         8.00         0.50    
 U.S. 10-year dollar swap        1.00         0.25    
 U.S. 30-year dollar swap      -26.25         0.25    
 spread (Reporting by Gertrude Chavez-Dreyfuss in New York and Tom
Westbrook in Singapore; Editing by Kim Coghill and Alison

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