TREASURIES-U.S. yields dip after two-day climb with auction on tap

       NEW YORK, Sept 8 (Reuters) - Longer-dated U.S. government
bond yields slipped on Wednesday coming off a two-day climb
after labor market data and ahead of an auction by the Treasury
in 10-year notes.
    Yields had climbed in the wake of Friday's government
payrolls report, which missed expectations, but underlying
measures such as wage growth were fairly strong and investors
viewed the report as unlikely to move the U.S. Federal Reserve
off track to begin tapering its bond purchases by year-end.

    Labor market data on Wednesday showed job openings in the
U.S. rose to 10.934 million in July, up from the revised 10.185
million in the prior month.
    "What is actually happening here across the board is a
reassessment of the environment, a reassessment of the inflation
environment, a reassessment of are we going into a bit of a
stagflation environment is really the concern that investors are
going to be having," said Steven Ricchiuto, U.S. chief economist
at Mizuho Securities USA LLC in New York.
    "You have a little evidence here of quits going up, you have
a little evidence of employment not going up that much so you
are in an environment where you begin to question whether or not
the labor market is reaching full employment at higher levels of
unemployment than it was doing in previous business cycles."
    The yield on 10-year Treasury notes was down 1.6
basis points to 1.355%. An auction of $38 billion is scheduled
for 1 p.m. ET (1800 GMT)
    The yield on the 30-year Treasury bond was down
1.9 basis points to 1.966%.
    Treasury will also offer $24 billion in 30-year bonds on
Thursday. Analysts at Wells Fargo note that yields of both the
10-year and 30-year have tended to fall on 30-year auction days
over the past year.
    Congressional debate is expected to heat up in the coming
weeks over the debt ceiling issue with Treasury due to run out
of money sometime in October. Without an extension to Treasury's
borrowing limits, the risk of a technical default will weigh on
short-term debt.
    A $30 billion 8-week auction, also on Thursday, is expected
to more likely reflect the risk the market sees around the
possible expiration of the U.S. debt ceiling.
    On Wednesday, U.S. Treasury Secretary Janet Yellen again
pressed Congress to address the limit on U.S. government
borrowing, saying the "most likely outcome is that cash and
extraordinary measures will be exhausted during the month of
October."
    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 113.5 basis points after steepening to a
near two-month high of 116.4 on Tuesday.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 0.4
basis points at 0.218%.


      September 8 Wednesday 10:27AM New York / 1427 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.045        0.0456    0.000
 Six-month bills               0.0525       0.0532    0.002
 Two-year note                 99-209/256   0.2182    -0.004
 Three-year note               99-202/256   0.4458    -0.007
 Five-year note                99-174/256   0.8158    -0.005
 Seven-year note               100          1.125     -0.013
 10-year note                  99-8/256     1.3545    -0.016
 20-year bond                  97-176/256   1.8897    -0.017
 30-year bond                  100-196/256  1.966     -0.019

   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        10.00        -1.75
 spread
 U.S. 5-year dollar swap         8.75         0.25
 spread
 U.S. 10-year dollar swap        1.50         0.00
 spread
 U.S. 30-year dollar swap      -26.50         0.50
 spread


 (Reporting by Chuck Mikolajczak
Editing by Nick Zieminski)

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