Longer-term yields higher as Fed gives more framework details

By Ross Kerber

Aug 28 (Reuters) - Longer-term U.S. Treasury yields rose on Friday as U.S. Federal Reserve officials fleshed out the central bank's new approach to inflation, while investors rebalanced intermediate-dated debt following large auctions earlier this week.

The benchmark 10-year US10YT=RR yield was down a basis point at 0.7359% in afternoon trading, while the five-year note US5YT=RR was down 3 basis points at 0.2799%.

U.S. Treasury auctions of roughly $150 billion worth of three-year, five-year and seven-year notes received strong demand starting on Tuesday. The decline in yields on each of those instruments on Friday likely reflected traders repositioning, said Subadra Rajappa, head of U.S. rates strategy for Societe Generale.

"A lot of this movement I would chalk off as more month-end buying, as opposed to anything fundamental," she said.

Longer-term yields climbed sharply after Fed Chair Jerome Powell on Thursday unveiled the bank's new approach to monetary policy that puts more emphasis on fighting shortfalls in unemployment and less weight on concerns about higher inflation.

The yield on the 30-year U.S. bond US30YT=RR reached as high as 1.577% after Powell spoke, its highest since June 16.

In trading on Friday afternoon it was up 1.8 basis points at 1.5182%, as Federal Reserve officials diverged about what the new strategy might mean in practice and said there was no exact science on how it might be applied.

The higher yield on the 30-year reflected that "People have less conviction on the long end, given that we don't know what the Fed is going to do," said Priya Misra, head of global rates strategy for TD Securities.

U.S. consumer spending increased more than expected in July, new data showed.

Wall Street advanced on Friday pushed higher by technology stocks, with the S&P 500 on track for its sixth record closing high since confirming a bull market on Aug. 18.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, US2US10=RR seen as an indicator of economic expectations, was at 59 basis points, about even with Thursday's close, a level unseen since June 10.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 2.1 basis points at 0.1367%.

August 28 Friday 2:26PM New York / 1826 GMT

Price

US T BONDS SEP0 UScv1

176-8/32

-0-5/32

10YR TNotes SEP0 TYcv1

139-48/256

0-56/256

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.1

0.1014

0.000

Six-month bills US6MT=RR

0.11

0.1119

-0.002

Two-year note US2YT=RR

99-250/256

0.1367

-0.021

Three-year note US3YT=RR

99-232/256

0.1568

-0.034

Five-year note US5YT=RR

99-218/256

0.2799

-0.030

Seven-year note US7YT=RR

99-236/256

0.5114

-0.023

10-year note US10YT=RR

98-240/256

0.7359

-0.010

20-year bond US20YT=RR

97-28/256

1.2897

0.010

30-year bond US30YT=RR

96-144/256

1.5182

0.018

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

8.75

0.00

U.S. 3-year dollar swap spread

8.25

1.00

U.S. 5-year dollar swap spread

6.25

0.75

U.S. 10-year dollar swap spread

0.25

0.75

U.S. 30-year dollar swap spread

-38.00

-1.00

(Reporting by Ross Kerber in Boston Editing by Paul Simao and Tom Brown)

((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.com@Reuters.net))

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