TREASURIES-Yields extend surge as oil, Trump boost inflation bets

* 10-yr yields hit roughly 1-1/2-year high of 2.492 pct

* 30-yr yields hit 16-1/2-month high of 3.156 pct

* Trump policies, rally in oil prices boost inflation

expectations

* Upbeat U.S. manufacturing data contributes to higher

yields

(Updates prices, adds comment)

By Sam Forgione

NEW YORK, Dec (Shanghai: 600875.SS - news) 1 (Reuters) - U.S. Treasury yields surged on

Thursday with benchmark yields touching their highest levels in

roughly a year and a half on expectations that gains in oil

prices and U.S. President-elect Donald Trump's policies would

fuel higher inflation.

Brent crude prices built on Wednesday's gains with a more

than 4 percent jump a day after OPEC and Russia agreed to

restrict output. The rally in crude, along with expectations

that Trump will enact policies that increase spending and debt

as well as spur growth and inflation, pushed Treasury yields

higher.

Inflation erodes bond prices, with 10- and 30-year

Treasuries most vulnerable. A stronger-than-expected U.S.

manufacturing reading for November and a rise in U.S.

construction spending in October also boosted

yields.

"Investors are building the possibility of inflation into

the Treasury curve," said Ellis Phifer, market strategist at

Raymond James in Memphis, Tennessee.

Benchmark 10-year yields hit 2.492 percent, their highest

level since June 11, 2015, while 30-year yields hit a 16-1/2

month high of 3.156 percent. U.S. five-year yields hit a more

than 5-1/2-year high of 1.935 percent, while seven-year yields

hit a more than two-year high of 2.295 percent.

U.S. two-year yields hit just a six-day high of 1.167

percent, while three-year yields hit their highest since

mid-February 2011 at 1.469 percent.

Comments on Wednesday from Steven Mnuchin, Trump's pick to

lead the U.S. Treasury, on introducing a longer-maturity bond

added to expectations that long-end rates would increase

further, said Kim Rupert, managing director for fixed income at

Action Economics in San Francisco.

The continued surge in yields came after U.S. Treasuries

posted a negative 2.7 percent return in November to mark their

worst performance since January 2009, according to Bloomberg

Barclays (LSE: BARC.L - news) index data, while the Bloomberg Barclays U.S. Aggregate

Bond Index posted a negative 2.4 percent return to mark its

worst monthly showing in at least 10 years.

Traders awaited U.S. monthly employment data due on Friday.

Economists polled by Reuters expect U.S. employers added 175,000

jobs last month.

U.S. 10-year Treasuries were last down 21/32 in

price to yield 2.4445 percent, up about eight basis points from

its yield late on Wednesday. U.S. 30-year Treasuries

were last down 1-19/32 in price to yield 3.1027 percent, also up

about eight basis points from late Wednesday's yield. Prices on

30-year Treasuries briefly fell more than two full points.

December 1 Thursday 3:25PM New York / 2025 GMT

Price

US T BONDS MAR7 149-13/32 -1-28/32

10YR TNotes MAR7 123-248/256 -0-140/2

56

Price Current Net

Yield % Change

(bps)

Three-month bills 0.4675 0.4745 -0.011

Six-month bills 0.5975 0.6076 -0.002

Two-year note 99-180/256 1.151 0.036

Three-year note 98-188/256 1.4392 0.049

Five-year note 99-80/256 1.8949 0.061

Seven-year note 99-50/256 2.25 0.072

10-year note 96-24/256 2.4445 0.077

30-year bond 95-160/256 3.1002 0.082

DOLLAR SWAP SPREADS

Last (bps) Net (LSE: 0LN0.L - news)

Change

(bps)

U.S. 2-year dollar swap 19.50 -0.75

spread

U.S. 3-year dollar swap 11.50 -1.00

spread

U.S. 5-year dollar swap -2.75 0.00

spread

U.S. 10-year dollar swap -16.75 0.25

spread

U.S. 30-year dollar swap -55.00 -0.75

spread

(Reporting by Sam Forgione; Editing by Bill Trott and Meredith

Mazzilli)