TREASURIES-US yields drop after data suggest cooling economy, rate hike pause

 (Adds comment in paragraphs 4-6, IMF urging central banks to
keep tightening policy in paragraph 7)
    By Herbert Lash
       NEW YORK, June 8 (Reuters) - Treasury yields fell on
Thursday after the number of Americans filing new claims for
unemployment benefits rose more than expected last week,
suggesting the labor market is cooling and that the Federal
Reserve could pause hiking interest rates.
    Initial claims for state unemployment benefits jumped 28,000
to a seasonally adjusted 261,000 for the week ended June 3, the
Labor Department said. Economists polled by Reuters had forecast
235,000 claims for the latest week.
    Despite the surge in applications, claims remain at levels
consistent with a tight labor market that for some suggest the
Fed can still achieve a "soft landing," a scenario in which
tighter monetary policy slows the economy and inflation without
triggering a recession.
        Kim Rupert, managing director of global fixed-income at
Action Economics in San Francisco, said a week's worth of data
for unemployment benefits does not amount to "a harbinger of
        "Yields took it as a sign that the labor market is
cooling. The market is looking for anything that would
substantiate that the Fed is going to be on hold next week,"
said Rupert, who's in the camp that believes the U.S. central
bank could raise rates next week.
        "There are a number of factors that suggest the Fed can
stay on hold and maybe skip next week. But all the numbers are
still too hot in general for the Fed to remain on hold."
    International Monetary Fund
     on Thursday urged the Fed and other central banks to "stay
the course" on monetary policy and to remain vigilant in
combating inflation.
    The two-year Treasury yield, a barometer for
where the market perceives future Fed policy, dropped 2.9 basis
points to 4.521%, while the yield on benchmark 10-year notes
 slid 6.8 basis points to 3.716%. 
    The spread of the Treasury yield curve based on two- and
10-year notes was at -80.9 basis points. When the
spread is inverted - shorter-dated debt yields more than
longer-dated debt - it is considered a sign of looming
    The claims data put a halt to a steady rise in yields this
week as the market slowly accepted the Fed's mantra that rates
will be higher for longer. The two-year yield has gained about
78 basis points since a seven-month closing low of 3.727% on May
4, the day after the central bank's last Federal Open Market
Committee meeting. 
    The yield on the 30-year Treasury bond fell 6
basis points to 3.882%. 
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
    The 10-year TIPS breakeven rate was last at
2.214%, indicating the market sees inflation averaging about
2.2% a year for the next decade.
    The U.S. dollar 5 years forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed's
quantitative easing, was last at 2.525%.

    June 8 Thursday 3:41 p.m. New York / 1941 GMT
                                Price           Current Yield %   Net Change (bps)
 Three-month bills              5.115           5.2532            -0.065
 Six-month bills                5.1675          5.3938            -0.038
 Two-year note                  99-126/256      4.521             -0.029
 Three-year note                98-132/256      4.1673            -0.040
 Five-year note                 98-246/256      3.8563            -0.063
 Seven-year note                99-188/256      3.7936            -0.074
 10-year note                   97-52/256       3.7141            -0.070
 20-year bond                   97-176/256      4.0449            -0.073
 30-year bond                   95-120/256      3.8822            -0.060
   DOLLAR SWAP SPREADS                                            
                                Last (bps)      Net Change (bps)  
 U.S. 2-year dollar swap         20.00            0.25            
 U.S. 3-year dollar swap         12.50            0.25            
 U.S. 5-year dollar swap          6.25            0.00            
 U.S. 10-year dollar swap         1.75           -0.25            
 U.S. 30-year dollar swap       -40.25            0.25            
 spread (Reporting by Herbert Lash; Editing by Peter Graff, Jonathan
Oatis and Paul Simao)