TREASURIES-U.S. yields mostly higher after strong labor reports

BY Reuters | ECONOMIC | 01/05/23 03:57 PM EST
    (Adds analyst comment, bullets; updates prices)

      U.S. private payrolls rise more than expected in December

      U.S. jobless claims report comes out better than forecast

      Fed's George says Fed needs to raise rates to more than 5%

    By Gertrude Chavez-Dreyfuss
       NEW YORK, Jan 5 (Reuters) -
    U.S. Treasury yields for most maturities rose on Thursday
after the latest data showed that the labor market in the
world's largest economy remained tight, suggesting the Federal
Reserve will keep interest rates higher for some time.
    The ADP National Employment report showed that U.S. private
payrolls increased more than expected in December, rising by
235,000 jobs last month. Economists polled by Reuters had
forecast private jobs increasing 150,000.
    At the same time, U.S. initial jobless claims fell 19,000 to
a seasonally-adjusted 204,000 for the week ended Dec. 31, the
lowest since the end-September. Economists polled by Reuters had
forecast 225,000 claims for the latest week.
        "The market has been perpetually looking for an easing
in the employment situation and they're just not getting it,"
said Ellis Phifer, managing director, fixed income research, at
Raymond James in Memphis.

        He added that data, which were both stronger than
expected, has put doubt into investors' minds about a Fed

        "I am still unsure why anyone at this point would think
the Fed would pivot policy," Phifer said.
    Comments from Kansas City Fed President Esther George, who
is retiring this month, also contributed to the rise in Treasury
yields, analysts said.
    George said she believed the Fed would need to lift the fed
funds rate from the current 4.25%-4.5% to over 5% and stay there
"for some time ... until we get the signal that inflation is
really convincingly starting to fall back toward our 2% goal."
    St. Louis Fed President James Bullard, for his part,
believed the economy could finally see some welcome relief on
the inflation front this year. "During 2023, actual inflation
will likely follow inflation expectations to a lower level as
the real economy normalizes."
        Stan Shipley, fixed income strategist, at Evercore ISI
in New York said the Fed wants jobs growth to slow and the
unemployment rate to rise.

        "They need to see jobs growth below 100,000 for several
months in a row. So we need to have rates higher to slow the
economy further," he added.

    In afternoon trading, the yield on 10-year Treasury notes
 was flat at 3.714%.
    U.S. 30-year Treasury bond yields were down 3.3
bps at  3.849%.
    A closely watched part of the U.S. yield curve, measuring
the gap between yields on two- and 10-year Treasury notes
 and seen as an indicator of economic expectations,
remained inverted at -73.6 basis points. The inversion went as
deep as -75.30 bps, the most inverted in three weeks.
    An inverted curve typically foreshadows recession.
    On the short-end of the curve, U.S. two-year
yields, which typically track rate expectations, was up 6 bps at
    In other parts of the Treasury market, U.S. breakeven
inflation rates were mostly higher on Thursday
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) rose to
2.25%. The five-year breakeven rate suggested that investors
expect inflation, as measured by the consumer price index, to
average around 2.25% over the next five years.
    The 10-year TIPS breakeven rate was last at
2.224%, up nearly 2 bps.
      January 5 Thursday 3:35PM New York/2035 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             4.51         4.6248    0.109
 Six-month bills               4.67         4.8487    0.061
 Two-year note                 99-162/256   4.4451    0.058
 Three-year note               99-122/256   4.1903    0.043
 Five-year note                99-230/256   3.8975    0.023
 Seven-year note               100-84/256   3.8209    0.015
 10-year note                  103-104/256  3.7088    0.000
 20-year bond                  100-140/256  3.9597    -0.019
 30-year bond                  103-216/256  3.7838    -0.035

                               Last (bps)   Net
 U.S. 2-year dollar swap        28.50         0.00
 U.S. 3-year dollar swap        10.75         0.25
 U.S. 5-year dollar swap         0.50         0.00
 U.S. 10-year dollar swap       -5.25         0.25
 U.S. 30-year dollar swap      -46.25         0.75

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Alex
Richardson and Nick Zieminski)

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