TREASURIES-U.S. yields rise on potential rate hike in 2022

 (Adds afternoon pricing, comment)
    By Herbert Lash
    NEW YORK, Sept 24 (Reuters) - U.S. Treasury yields jumped
again on Friday as a repricing of portfolios continues in the
wake of the Federal Reserve's decision to soon begin tapering
its massive bond purchases, a move that could lead to higher
interest rates next year.
    The yield on 10-year Treasury notes rose 4.9
basis points to 1.456%, up from the closing yield of 1.304% on
Wednesday when the initial reaction to the Fed's plans announced
that afternoon was muted. 
    The Fed should start to reduce its support for the economy
in November and could start raising rates by the end of 2022 if
labor markets continue to improve as expected, Cleveland Federal
Reserve Bank President Loretta Mester said on Friday.

    Mester's comments echoed the hawkish tone set by Fed Chair
Jerome Powell on Wednesday, which was heightened by the Bank of
England saying on Thursday the case for higher rates "appeared
to have strengthened." The sell-off then began in earnest. 
    "The combination of the Fed and the Bank of England meetings
were the starting pistol," said Jim Vogel, interest rate
strategist at FHN Financial in Memphis, Tennessee.
    "In turns like this the sellers always have the first and
the upper hand and as buying continues, you can see some of the
sell-off perhaps begin to slow after next week," he said.
    Investors are positioning for next week's auction of $61
billion in five-year notes and $62 billion in seven-year notes,
which will set their price level, Vogel said.
    For the five-year, now above 0.9% on its yield, it could
rise to 1%, while for the seven the range is 1.25% to 1.3%, he
said. 
    The Treasury also will auction $60 billion of two-year notes
next week. 
    Investors remain wary of any fallout from heavily indebted
China Evergrande and the potential for news over the
weekend and the debt ceiling negotiations in Washington also are
a concern, Vogel said.
    Congress must pass a stop-gap funding bill by Sept. 30 to
keep the government open until a budget is approved, in addition
to raising the debt ceiling. 
    U.S. President Joe Biden on Friday expressed confidence
spending bills to address infrastructure and other spending
would pass in Congress despite being at a stalemate.
    "Our best guess is that political brinkmanship will continue
for the next few weeks or at least until the financial markets
demand a quick resolution," said Joseph LaVorgna, chief
economist for the Americas at Natixis in a note.
    The yield on the 30-year Treasury bond was up
6.3 basis points to 1.987%. 
    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 118.2 basis points. 
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 1.7 basis
points at 0.276%. 
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
2.502%.
    The 10-year TIPS breakeven rate was last at
2.34%, indicating the market sees inflation averaging 2.33% a
year for the next decade.
    
    September 24 Friday 2:56PM New York / 1856 GMT
                            Price       Current  Net
                                        Yield %  Change
                                                 (bps)
 Three-month bills          0.035       0.0355   0.006
                                                 
 Six-month bills            0.05        0.0507   0.005
                                                 
 Two-year note              99-182/256  0.2756   0.017
 Three-year note            99-128/256  0.5451   0.022
                                                 
 Five-year note             99-2/256    0.9567   0.028
 Seven-year note            99-24/256   1.262    0.043
                                                 
 10-year note               98-20/256   1.4595   0.049
 20-year bond               96-252/256  1.9334   0.062
 30-year bond               100-76/256  1.9867   0.063
                                                 
   DOLLAR SWAP SPREADS                           
                            Last (bps)  Net      
                                        Change   
                                        (bps)    
 U.S. 2-year dollar swap     11.25       -0.25   
 spread                                          
 U.S. 3-year dollar swap     12.00       -0.50   
 spread                                          
 U.S. 5-year dollar swap      9.50       -0.50   
 spread                                          
 U.S. 10-year dollar swap     2.75        0.25   
 spread                                          
 U.S. 30-year dollar swap   -24.00        0.50   
 spread                                          
                                                 
 

 (Reporting by Herbert Lash; editing by David Evans and Sonya
Hepinstall)