TREASURIES-Volatile trading drives short-and long-term yields apart to milestone levels - Reuters

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 (Updates with market activity, details on TIPS, 5/30 curve)
    By Ross Kerber
    Feb 5 (Reuters) - The Treasury yield curve steepened on
Friday as yields on the benchmark 10-year note soared to levels
not seen in nearly a year while two-year yields hit record lows
after U.S. jobs data strengthened expectations of more stimulus
spending from Washington.
    The benchmark 10-year yield was last up 2.6
basis points at 1.1652% having risen to 1.188%, its highest
since March 20, 2020.
    At the other end of the curve the yield on the 2-year note,
seen as an indicator of inflation expectations, was down almost
a basis point at 0.1072% after matching its all-time low of
0.105% last reached May 8, 2020.
    The movement left the closely watched part of the U.S.
Treasury yield curve measuring the gap between yields on the two
notes, seen as an indicator of economic
expectations, at 106 basis points, about 4 basis points higher
than Thursday's close and its highest since April 2017.
    Priya Misra, TD Securities head of global rates strategy,
said the volatile trading showed investors focused on
incremental news about spending talks in Washington after the
morning jobs report did not offer a clear case for either the
Biden administration's $1.9 trillion plan or the Republicans'
smaller package. 
    Expectations "are all over the place," she said.
    U.S. employment growth rebounded less than expected in
January and job losses the prior month were deeper than
initially thought, strengthening the argument for additional
relief money from the government to aid the recovery from the
COVID-19 pandemic.
    Analysts described the results as having mixed implications
for government bond markets and giving traders a chance to take
profits after yields on longer-term U.S. notes rose in recent
days.
    "The jobs report isn’t bad. You should expect a lot of
volatility at a time like this," said Subadra Rajappa, head of
U.S. Rates Strategy for Societe Generale in New York. The
unemployment rate was at 6.3% in January, which Rajappa said put
it closer to achieving the 5% targeted by the U.S. Federal
Reserve.
    
    ROOM TO RUN
    Yields on the 20- and 30-year notes
also rose, with the latter just below the 2% level last seen a
year ago. Another measure of the yield curve, the gap between
5-year and 30-year notes, was up 3 basis points at
150 basis points, the most since October 2015.
     U.S. Treasury investors are pricing for an uptick in
inflation as the economy recovers and the U.S. Federal Reserve
seems willing to let the economy run hot.
    The 10-year Treasury Inflation-Protected Securities'
 breakeven inflation rate, which briefly slipped
below 2% last week, was last at 2.191% , indicating the market
expects inflation to average more than 2% a year for the next
decade, above the current pace of inflation. It went as high as
2.197%, highest since May 2018.
    U.S. stocks rose on Friday with the S&P 500 and the Nasdaq
hitting record highs as stimulus talks, upbeat earnings and
progress in vaccine rollouts bolstered bets of a speedy economic
recovery. 

  February 5 Friday 2:46PM New York / 1946 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0325       0.033     -0.005
 Six-month bills               0.045        0.0456    -0.007
 Two-year note                 100-9/256    0.1072    -0.008
 Three-year note               99-212/256   0.1838    -0.005
 Five-year note                99-144/256   0.464     0.005
 Seven-year note               99-132/256   0.8216    0.013
 10-year note                  97-84/256    1.1652    0.026
 20-year bond                  93-76/256    1.7787    0.038
 30-year bond                  92-76/256    1.9682    0.036
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         9.00         0.50    
 spread                                               
 U.S. 3-year dollar swap         9.75         0.50    
 spread                                               
 U.S. 5-year dollar swap        12.00         0.25    
 spread                                               
 U.S. 10-year dollar swap        7.00         0.00    
 spread                                               
 U.S. 30-year dollar swap      -21.25         0.75    
 spread (Reporting by Ross Kerber in Boston; Editing by Jonathan Oatis,
Kirsten Donovan and Andrea Ricci)
  

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