TREASURIES-Yields rise ahead of June jobs report

 (Updates yields, adds analyst comments, reverse repo volume,
breakeven rate)
    By Karen Pierog
    CHICAGO, July 1 (Reuters) - U.S. Treasury yields crept a
little higher on Thursday as the market awaited the government's
June employment report for clues on how it might influence
Federal Reserve monetary policy. 
   The benchmark 10-year yield was last up 3.1 basis
points at 1.4747%. On Wednesday, it tumbled to its lowest level
since June 21 at 1.438% due mostly to quarter- and month-end
    Friday's closely watched U.S. Labor Department report is
expected to show that nonfarm payrolls increased by 700,000 in
June, after rising by 559,000 in May, according to a Reuters
poll of economists. The unemployment rate is forecast to have
fallen to 5.7%, from 5.8% in May. 
    The Fed has been focusing on the labor market's recovery as
well as inflation as it contemplates when and how to roll back
measures put in place last year to aid the coronavirus-battered
   Anders Persson, chief investment officer of global fixed
income at Nuveen, said while the Treasury market may be looking
for direction from June jobs data, it and the Fed are likely to
remain in a holding pattern until the trajectory of economic
growth and inflation becomes clearer.
    "It's going take a couple more months before we get that
clarity in the data," he said. "I struggle to see that tomorrow
is really going to change the narrative, including for the Fed."
    Still, yields may move around a bit in the short term after
the report due to technical factors and light staffing on
trading desks heading into the July 4th holiday weekend, Persson
    Ahead of Friday's jobs report, the Labor Department said on
Thursday that initial claims for state unemployment benefits
dropped by a bigger-than-expected 51,000 to a seasonally
adjusted 364,000 for the week ended June 26.
    Economists polled by Reuters had forecast 390,000
applications for the latest week.
    "The data continued to show the recovery intact and getting
there slowly on the labor market," said Kim Rupert, managing
director for fixed income at Action Economics in San Francisco.
    The Institute for Supply Management reported that U.S.
manufacturing activity grew at a moderate pace in June, but
employment contracted for the first time in seven months likely
due to shortages of raw materials and labor.
    Meanwhile, the amount of cash flowing into the Fed's
overnight reverse repurchase operation eased to $742.6 billion
on Thursday following Wednesday's record high $992 billion.
    The breakeven inflation rate on five-year Treasury
Inflation-Protected Securities rose to its highest
level since early June at 2.515%.
    The two-year Treasury yield was last less than a
basis point higher at 0.2566%.
   A closely watched part of the yield curve that measures the
gap between yields on two- and 10-year Treasury notes 
 was less than a basis point steeper at 121.64 basis
points. The five-year note to 30-year bond yield curve
 was last 1.55 basis points flatter at 118.06 basis
   July 1 Thursday 3:13PM New York / 1913 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.0475       0.0482    0.002
 Six-month bills               0.05         0.0507    -0.005
 Two-year note                 99-189/256   0.2566    0.008
 Three-year note               99-90/256    0.4713    0.016
 Five-year note                99-224/256   0.9006    0.026
 Seven-year note               100-8/256    1.2453    0.030
 10-year note                  101-96/256   1.4747    0.031
 20-year bond                  103-212/256  2.0152    0.019
 30-year bond                  106-128/256  2.0816    0.015
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         8.00         0.25    
 U.S. 3-year dollar swap        12.25         1.75    
 U.S. 5-year dollar swap         8.00         1.00    
 U.S. 10-year dollar swap       -2.00         0.75    
 U.S. 30-year dollar swap      -31.00         0.50    
 spread (By Karen Pierog; Editing by Andrea Ricci and Nick Zieminski)