TREASURIES-2-year yield highest since 2008, spread over bunds hits 17-year high

(Corrects first and third-last paragraphs to say 2008 instead of 2007)

By Dion Rabouin

Oct (Shenzhen: 000069.SZ - news) 18 (Reuters) - Yields on 2-year Treasury notes rose to their highest since November 2008 on Wednesday as expectations for tighter global monetary policy pushed bond investors to sell shorter-dated debt.

The yield spread between U.S. 2-year government debt and its German counterpart jumped to the highest level since February 2000, as the European Central Bank was seen as less hawkish than the U.S. Federal Reserve.

Yields rose overnight in U.S. trading, spurred by Chinese President Xi Jinping's speech to the Communist Party Congress and overhang from hawkish rhetoric by the U.S. Federal Reserve and signs of progress in Washington, analysts said.

Xi's speech was seen as supportive of continued growth for China and the globe, analysts said, reducing the allure of safe-haven U.S. government debt.

The sell-off accelerated after remarks by New York Fed President William Dudley seemed to support Fed Chair Janet Yellen's comments over the weekend that the central bank was likely to continue its path of U.S. interest rate increases.

"The general tone from Fed speakers this week has been more on the hawkish side," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale (Swiss: 519928.SW - news) . "That and the global removal of accommodation is something markets have noticed."

Rajappa added that U.S. yields were moving up in concert with European government bond yields. Expectations have risen that the European Central Bank, which meets next Thursday, could signal a prolonged rollback of its monetary stimulus.

Reuters reported last week that policymakers are broadly in agreement about extending asset purchases at a lower volume, with views converging on a nine-month extension.

While yields on German bunds and British gilts had declined in the last few days as Treasuries rose, "today we all seem to be heading in the same direction," Rajappa said.

U.S. 2-year Treasury yields rose to 1.571 percent, their highest since November 2008.

Benchmark 10-year notes were last down 12/32 in price to yield 2.341 percent. Yields had earlier climbed to a one-week high.

The 30-year bond dropped 31/32 in price to yield 2.851 percent, having earlier touched a six-day high. (Reporting by Dion Rabouin; Editing by Meredith Mazzilli and Richard Chang)