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TREASURIES-Prices tumble on rosy U.S. jobs report
* U.S. hiring last month most since early 2012
* Two-year yield surges to highest since May 2011
* Traders move up interest rate hike bets to July (Adds short-term yield details, late prices)
By Michael Connor
NEW YORK, Dec 5 (Reuters) - U.S. Treasuries prices dropped on Friday after data showed U.S. employers hired more workers in November than during any month in nearly three years, boosting expectations for the U.S. Federal Reserve to raise interest rates by mid-2015.
The robust report knocked down prices of shorter maturities sharply, and pushed short-term yields toward their biggest single-day rises in nearly four years.
The yield on U.S. 2-year Treasuries rose to its highest since May 2011, according to Reuters data.
"This supports the view that the Federal Reserve will start hiking rates in the middle of next year," said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California.
Traders shifted bets on the Fed's first round of interest-rate increases to July 2015 from September 2015 before the report.
That put traders in line with the November Reuters poll of primary dealers, most of whom saw the first interest-rate increase in June.
The yield curve also flattened, with the differential between the five-year note and the 30-year bond falling to its lowest since January 2009.
Shorter-end trading, especially in three-year and five-year Treasuries, has been dominated by low inflation expectations and the slide in world oil prices, according to Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
"Today's big number makes people go, 'Oh, the Fed's out there'," Vogel said. "So there's this big move up in real interest rates in threes and fives."
Three-year notes were down 11/32 and five-year maturities fell 14/32 in late trading. The two-year Treasuries yield was at 0.643 percent in late trading, up 10.3 basis points from late on Thursday
The benchmark 10-year Treasury note was off 14/32 and yielding 2.3047 percent. Yields on 30-year Treasuries briefly topped 3 percent and were last at 2.9659 percent, reflecting a price decline of 5/32. Bond prices fall when yields rise.
Nonfarm payrolls surged by 321,000 last month, the most since January 2012, the Labor Department said on Friday. The unemployment rate held steady at a six-year low of 5.8 percent.
In addition, data for September and October were revised to show 44,000 more jobs created than previously reported.
"It is unequivocally bullish on the U.S. economy," said Anthony Valeri, fixed-income strategist at LPL Financial (NasdaqGS: LPLA - news) in San Diego. "We'll need more evidence, but it definitely contradicts the low yield environment we have been in." (Additional Reporting by Richard Leong and Jennifer Ablan in New York; Editing by W Simon and Peter Galloway)
