CASH-Most Yields Fall Following Fourth Quarter Repositioning

 (Updates with market activity, details on short-term debt,
Fitch comments)
    By Ross Kerber
    Oct 1 (Reuters) - Traders sent longer-term U.S. Treasury
yields lower on Friday as they repositioned for the year's
fourth quarter, although Washington's budget battles sent up
yields on soon-to-mature debt. 
    The benchmark 10-year yield was down 5 basis
points at 1.4771%. It had reached as high as 1.51% overnight but
settled despite positive economic data showing U.S. consumer
spending increased more than expected in August.
    "We've had a bit of a pullback, I think it's more technical
than fundamental in nature," said Kevin Flanagan, head of fixed
income strategy at WisdomTree Asset Management.
    Investors were buying Treasuries after a big sell-off that
began Sept. 23 when the U.S. Federal Reserve and European
central bankers moved toward higher interest rates, he
said.
    Flanagan and others described the high-stakes budget brawl
in Washington as having little effect on the government debt
market. 
    The Democratic-controlled U.S. Congress struggled on Friday
to advance President Joe Biden's agenda, with House progressives
vowing to block a $1 trillion infrastructure bill without a deal
on a larger social spending and climate change bill.
    An exception was the market for bills with approaching
maturities as Treasury Secretary Janet Yellen has estimated a
historic U.S. debt default could occur around Oct. 18 if
Congress fails to act.
    The yield on a U.S. Treasury bill maturing on Oct. 19
             for instance reached as high as 0.15% on Friday and
was last at 0.1014%, still more than any prior day since the
bill was issued in June.
    Fitch Ratings said on Friday the United States' AAA
sovereign credit rating could be pressured if federal lawmakers
fail to address the debt ceiling in a timely manner.
     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 121 basis points, about the same as
Thursday's close.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 2.3
basis points at 0.2657%.
        
       October 1 Friday 2:15PM New York / 1815 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.0375       0.038     0.000
 Six-month bills               0.05         0.0507    0.000
 Two-year note                 99-248/256   0.2657    -0.023
 Three-year note               99-168/256   0.4926    -0.031
 Five-year note                99-180/256   0.936     -0.059
 Seven-year note               99-230/256   1.2652    -0.060
 10-year note                  97-236/256   1.4771    -0.050
 20-year bond                  95-252/256   1.9958    -0.038
 30-year bond                  98-188/256   2.0569    -0.034
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        10.50         0.75    
 spread                                               
 U.S. 3-year dollar swap        14.25         0.75    
 spread                                               
 U.S. 5-year dollar swap         8.75         0.25    
 spread                                               
 U.S. 10-year dollar swap        1.50        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -26.50        -1.00    
 spread (Reporting by Ross Kerber in Boston; Editing by Nick Macfie,
Kirsten Donovan)
  

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