TREASURIES-US yields rise after Fed comments as economic outlook gauged

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Yields climb after two-day decline

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Fed dissenters express concerns over inflation

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10-year yield poised for second straight weekly gain

By Chuck Mikolajczak

NEW YORK, Dec 12 (Reuters) - U.S. 10-year Treasury yields rose on Friday after two straight sessions of declines, as investors assessed commentary from a flurry of Fed speakers and a positive outlook on the economy. U.S. yields had been steadily rising in recent weeks in tandem with global yields as many central banks had signaled they are either at or near the end of their own easing cycles, while the Bank of Japan is widely anticipated to hike rates at its policy meeting next week. However, yields retreated after the Federal Reserve announced a rate cut on Wednesday, but signaled a likely near-term pause as it sees a pickup in economic growth next year. The central bank also said it would begin buying short-dated government bonds on Friday to help manage market liquidity levels to ensure the central bank retains firm control over its interest rate target system. Multiple Fed officials commented on their stance in the recent policy meeting as the blackout period ended, with those who voted against the rate reduction expressing concerns that inflation remains too high to justify lowering borrowing costs, especially in light of the lack of official data due to the extended government shutdown. "The data is very mixed right now and these are individuals on the Fed with different projections and different thoughts around everything," said Tony Welch, chief investment officer at SignatureFD in Atlanta.

"It's a result of the tug of war between inflation and employment right now. And people just have different perspectives on it." The yield on the benchmark U.S. 10-year Treasury note rose 4.5 basis points to 4.186% and was up nearly 5 basis points on the week, putting it on track for a second straight weekly climb. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 1.1 basis points to 3.541% and was down 2.5 basis points on the week. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 64.3 basis points after reaching 65.3, its widest since April 21.

The curve was showing a bear-steepener situation, where the rise in long-term rates outpaces that of short-term rates, which reflects market expectations for higher economic growth and persistent inflation. "What's happening is we're repricing that the economy is going to be in pretty decent shape next year and so that's one of the ways you can end up with kind of a steeper curve," said Welch.

The yield on the 30-year bond rose 5.9 basis points to 4.849% and was up nearly 6 basis points on the week, on pace for a second straight weekly advance. Many market participants are expecting a boost to economic growth next year as President Donald Trump's massive tax-cut and spending bill takes effect. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.325% after closing at 2.32% on Thursday, its lowest level in a week. The 10-year TIPS breakeven rate was last at 2.272%, indicating the market sees inflation averaging about 2.3% a year for the next decade. (Reporting by Chuck Mikolajczak, Editing by Franklin Paul)