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Yields approach 1.5% after three-day stall; Powell speech eyed

(Adds repurchase rate data) By Chuck Mikolajczak NEW YORK, March 3 – Longer-term U.S. Treasury yields rose on Wednesday, as investors looked to comments from Federal Reserve Chair Jerome Powell on Thursday for signs the central bank was poised to concede the risk of a rapid rise in interest rates. Powell is set to speak at 12:05 p.m. EST (1705 GMT) before a virtual Wall Street Journal Jobs Summit and his remarks will be watched for any clues to a possible change in Fed language ahead of the March 16-17 policy meeting. The benchmark 10-year note was poised to snap a three-day streak of declines following a jump to a one-year high of 1.614 percent last week, with many Fed officials having downplayed the rise in recent days. Fed Governor Lael Brainard’s comments on Tuesday acknowledging concern over the possibility of a rapid rise in yields dampening economic activity were noted by investors as comments from many other Fed officials since Powell’s testimony to the Senate Banking Committee last week largely shrugged off the spike in yields. “Today we are rising a little bit on concerns that some of the central bankers around the world are not taking the move higher in rates seriously enough,” said Gennadiy Goldberg, interest rates strategist at TD Securities in New York. “There is still a lot of uncertainty, a lot of folks are concerned that rates can continue to rise if the Fed doesn’t push back and if central banks don’t push back sufficiently.” On Wednesday, Chicago Federal Reserve Bank President Charles Evans reiterated the view that the Fed will not need to further ease policy, with the recent jump in yields last week reflecting economic improvements. The yield on 10-year Treasury notes was up 5 basis points to 1.465%. The trading also pushed up 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, as wide as 135.4 basis points, the most since Friday. The overnight U.S. repurchase rate (repo)fell back to 0.0% after recovering from subzero levels reached last week as the market digested all the cash circulating through the financial system. The Secured Overnight Financing Rate which has replaced the London Interbank Offered Rate (LIBOR) as an interest rate benchmark for banks, rose to 0.04% after reaching 0.01% last week. Economic data was a mixed bag, with the ADP National Employment report showing private payrolls rose by 117,000 in February, short of the 177,000 estimate, although January was revised upward to 195,000. The data comes ahead of Friday’s payrolls report from the Labor Department, with estimates calling for nonfarm payrolls to rise by 180,000. A report from the Institute for Supply Management on the services sector showed a decrease in February to 55.3, short of the 58.7 estimate but still above the 50 mark that indicated expansion. The Fed’s “Beige Book” of economic activity showed a modest pace of recovery over the first weeks of the year, with businesses optimistic about the coming months and robust housing demand, but a lethargic improvement in the labor market. The yield on the 30-year Treasury bond was up 3.6 basis points to 2.252%. March 3 Wednesday 4:13PM New York / 2113 GMT Price US T BONDS JUN1 158-19/32 -0-28/32 10YR TNotes JUN1 133-24/256 -0-116/2 56 Price Current Net Yield % Change (bps) Three-month bills 0.04 0.0406 0.000 Six-month bills 0.06 0.0609 0.000 Two-year note 99-248/256 0.1407 0.018 Three-year note 99-134/256 0.2872 0.032 Five-year note 98-236/256 0.7204 0.043 Seven-year note 99-240/256 1.1343 0.051 10-year note 96-220/256 1.4652 0.050 30-year bond 91-212/256 2.2515 0.036 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.25 -0.25 spread U.S. 3-year dollar swap 11.00 -0.75 spread U.S. 5-year dollar swap 10.75 -0.75 spread U.S. 10-year dollar swap 6.25 -0.25 spread U.S. 30-year dollar swap -26.50 0.25 spread (Additional reporting by Alden Bentley; editing by Jonathan Oatis)

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