TREASURIES-U.S. yields rise as GDP data backs continued Fed rate hikes

By Gertrude Chavez-Dreyfuss NEW YORK, Nov 30 (Reuters) - U.S. Treasury yields rose on Wednesday after data showed the world's largest economy grew more than expected in the third quarter, reinforcing expectations that the Federal Reserve will continue to raise interest rates well into next year, though at a slightly slower pace. Gross domestic product expanded at a 2.9% annualized rate in the third quarter, according to the government's second estimate, higher than the preliminary number of 2.6%. The economy had contracted at a 0.6% rate in the second quarter. The second estimate was also higher than economists' forecast of 2.7%, a Reuters poll showed. "A positive-growth backdrop and a focus on lowering inflation will keep the Fed on track to raise rates into restrictive territory over coming months," wrote Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a research note after the GDP data. The report followed U.S. private sector employment data, which showed new jobs created rose less than expected in November, giving the Fed some flexibility to ease the pace of tightening. U.S. private employment increased by 127,000 jobs in November, the ADP National Employment report showed. Data for October was unrevised to show 239,000 jobs created. Economists polled by Reuters had forecast private jobs increasing 200,000. The ADP number briefly weighed on U.S. Treasury yields. "ADP private employment tally was much weaker than expected and with other high-frequency labor market metrics suggests deteriorating labor market," said Stan Shipley, fixed-income strategist at Evercore ISI in New York. Fed funds futures on Wednesday priced in an 81% chance of a 50 basis-point hike at a policy meeting this month, compared with a 63.5% probability on Tuesday. For the February meeting, the rates market has factored in a 72.5% likelihood of another such rate hike. In mid-morning trading, the yield on 10-year Treasury notes was up 2.2 basis points at 3.770%. The yield on the 30-year Treasury bond was up 2.4 b ps at 3.826 %. A widely-tracked part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes remained inverted at -76.3 basis points. The inversion of this curve typically precedes recession. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 5.8 bps at 4.531%. November 30 Wednesday 9:16AM New York / 1416 GMT Price Current Net Yield % Change (bps) Three-month bills 4.27 4.3765 -0.007 Six-month bills 4.5825 4.7563 0.024 Two-year note 99-243/256 4.5268 0.054 Three-year note 100-150/256 4.2861 0.042 Five-year note 99-156/256 3.9619 0.040 Seven-year note 99-248/256 3.8801 0.031 10-year note 102-244/256 3.7664 0.018 20-year bond 99-152/256 4.0297 0.015 30-year bond 103-40/256 3.8221 0.020 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 30.75 -0.50 spread U.S. 3-year dollar swap 11.50 -0.50 spread U.S. 5-year dollar swap 3.75 0.25 spread U.S. 10-year dollar swap -4.25 0.25 spread U.S. 30-year dollar swap -44.75 0.25 spread (Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski)