CHICAGO: U.S. Treasury yields rose on Thursday as market positioning ahead of the September employment report and a risk-on sentiment sparked by a stopgap debt ceiling plan in Congress pushed debt prices lower.

The benchmark 10-year yield was last up 4.7 basis points at 1.5712pc.

Guy LeBas, chief fixed income strategist at Janney Capital Management, said Treasuries were following two things.

"One is of course the apparent short-term resolution to debt ceilings worries. The second is equities markets, which in the last three days are up two and a half percent," he said.

The U.S. Senate was preparing to take up a $480 billion increase in the debt ceiling to avert a debt default when the government expects to run out of cash around Oct. 18. If enacted into law, that plan would expire in early December, reigniting default concerns that had pushed yields on the shortest end of the Treasury curve sharply higher.

Treasury bill yields have dipped from highs, with the October 19, 21, and 26 maturities back in the 6 basis-point range from around 18 basis points on Wednesday. But the pressure has shifted to the late November maturities. For instance, bills maturing on Nov. 30 are yielding nearly 18 basis points, double from a week ago.

Yields rise, default talk pressures T-bills

Ben Jeffery, an interest rate strategist at BMO Capital Markets, said there was a little bit of position squaring going on in Treasuries ahead of the release on Friday of the September jobs report. He added that job gains last month "will probably be close enough to consensus that it will just confirm tapering will be announced in November."

U.S. Federal Reserve policymakers have their eyes on the jobs data as they determine when to start reducing the central bank's $120 billion of monthly bond purchases.

According to a Reuters survey of economists, no farm payrolls likely rose by 500,000 jobs last month with the unemployment rate expected to dip to 5.1pc from 5.2pc in August.

On Thursday, U.S. Labor Department reported a fall in weekly jobless claims, which decreased 38,000 to a seasonally adjusted 326,000 for the week ended Oct. 2. Economists polled by Reuters had forecast 348,000 applications for the latest week.

The U.S. Treasury announced auctions next week for $58 billion of three-year notes, $38 billion of 10-year notes, and $24 billion of 30-year bonds.

The five-year note yield, which is more sensitive to intermediate interest rate hikes, was last up 3.5 basis points at 1.0202pc.

A closely-watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last 3.36 basis points steeper at 126.19 basis points.

Inflation expectations crept higher. The breakeven rate on five-year Treasury Inflation-Protected Securities (TIPS) hit 2.634pc, the highest since July. For 10-year TIPS, it rose to its highest since June at 2.472pc.

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