TREASURIES-Longer-dated US yields rise, 10-year poised for first weekly gain in five

By Chuck Mikolajczak

NEW YORK, Sept 19 (Reuters) - Longer-dated U.S. Treasury yields rose on Friday, with the benchmark 10-year note on track for its third straight gain and first weekly advance in five in the wake of the Federal Reserve's interest rate cut earlier this week.

Yields had been steadily falling in recent weeks in anticipation of the rate cut by the central bank, and the 10-year note touched a 7-month low of 3.994% last week after some economic data indicated the labor market may be faltering.

But yields began ascending after the central bank cut rates by 25 basis points on Wednesday, as was widely anticipated, and signaled more cuts were on the agenda. The climb continued on Thursday after weekly initial jobless claims data and a gauge of manufacturing activity in the mid-Atlantic region were stronger than expected.

"Fair value on 10-year Treasuries, it's a pretty wide band, but it's somewhere between 4% and 5%. We definitely went below the low end, so bonds were overbought and so now you're getting a little bit of an unwind of that," said Tony Welch, chief investment officer at SignatureFD in Atlanta.

"I don't know that yields go all the way back up to 5% in the midst of an ongoing easing cycle but we're within the range of fair value here ... and we're probably more at the low end of fair value than the high end so there is potential for rates to back up a little more before it's done."

Yields on the 10-year last hit 5% in Oct. 2023.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB rose 1.4 basis points to 4.118% and is up 6.2 basis points on the week. The three straight advances would mark the longest streak for the 10-year in a month.

The yield on the 30-year bond US30YT=TWEB rose 1.5 basis points to 4.735% and was also on track for a third straight session of gains.

Markets are currently pricing in a 94.1% chance of a 25 basis point cut at the Fed's October meeting, and nearly 50 basis points worth of cuts through the end of the year.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 55.1 basis points after hitting 55.7, its highest since September 9.

Federal Reserve Bank of Minneapolis President Neel Kashkari on Friday said job market risks warranted this week's rate cut and likely reductions at the central bank's next two meetings.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, shed 0.5 basis points to 3.563%.

Economists at Bank of America said they still see just one more cut from the Fed in December in their base case.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.461% after closing at 2.474% on Thursday, its highest since September 3.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.386%, indicating the market sees inflation averaging about 2.4% a year for the next decade.