TREASURIES-Yields climb as vaccine developments lift recovery hopes

By Karen Pierog CHICAGO, Dec 1 (Reuters) - U.S. Treasury yields rose on Tuesday as Wall Street began December with gains on hopes that developments on the coronavirus vaccine front would bring a speedy economic recovery. The benchmark 10-year yield was last up 7.1 basis points at 0.9128%, its highest level since mid-November, and the yield curve steepened. Bill Merz, head of fixed income research at U.S. Bank Wealth Management in Minneapolis, said yields climbed amid "constructive sentiment," which lifted stocks, that the economy would be in a better place six months from now. "We expect to see a continued gradual increase in long-term yields going into the next couple of quarters," he said, adding that the rise would be tempered by U.S. Federal Reserve actions. Yields briefly retreated a touch after the Institute for Supply Management reported that U.S. manufacturing activity slowed in November. Meanwhile, Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell are speaking at a congressional hearing. In prepared remarks released on Monday, Powell warned of a "challenging" few months ahead due to a rise in new COVID-19 cases and uncertainty over vaccine timing, production, distribution and efficacy. Mnuchin, in his testimony, called for targeted federal aid for workers and small businesses. The Treasury market will also be watching as Congress scrambles to avoid a possible government shutdown amid the pandemic with funding for almost all U.S. government agencies expiring on Dec. 11. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was last up 2.1 basis points at 0.1682%. 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 last at 74 basis points, 5 basis points higher than Monday's close. December 1 Tuesday 10:17AM New York / 1617 GMT Price Current Net Yield % Change (bps) Three-month bills 0.085 0.0862 -0.005 Six-month bills 0.095 0.0964 0.002 Two-year note 99-234/256 0.1682 0.021 Three-year note 100-24/256 0.2181 0.032 Five-year note 99-206/256 0.4145 0.053 Seven-year note 99-166/256 0.6766 0.063 10-year note 99-164/256 0.9128 0.071 20-year bond 98-228/256 1.4392 0.075 30-year bond 99-120/256 1.6475 0.077 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.00 -1.25 spread U.S. 3-year dollar swap 6.75 -1.50 spread U.S. 5-year dollar swap 4.50 -1.75 spread U.S. 10-year dollar swap -0.25 -0.50 spread U.S. 30-year dollar swap -31.00 0.25 spread (Reporting by Karen Pierog; editing by Jonathan Oatis)