*

Odds of 25-basis point rate cut this month rise to 87%

according

to FedWatch tool

*

Two year yields fall to five-week low after payrolls

report

(Updates to late morning trading)

By Tatiana Bautzer

NEW YORK, Dec 6 (Reuters) -

U.S. Treasuries yield fell to a six-week low after the

release of November payrolls data, as investors considered the

numbers as a green light to one more rate cut by the Federal

Reserve on its December 17-18 meeting.

The yield on the benchmark U.S. 10-year Treasury note

fell 3.3 basis points to 4.149%. The front end of

the curve had a sharper drop, with the two-year

U.S. Treasury yield falling 5 basis points to 4.096%.

The yield on the 10-year note fell to 4.126% during the

session, its lowest since Oct. 21, while the 2-year yield

slumped to 4.077%, a level not seen since Nov. 1.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes steepened after to 5.1 points. Just before

the payrolls release, the yield curve inverted to negative 7.1

basis points, the lowest in three months.

Odds of a 25-basis points rate cut in the December meeting

jumped to 89% on Friday, up from 70% late on Thursday, according

to the CME's FedWatch Tool.

"It looks like there's no reason to worry about an

imminent recession and there's no reason for the Fed to take a

pause on cuts quite yet," said Brian Jacobsen, chief economist

at Annex Wealth Management.

Nonfarm payrolls

increased by 227,000 jobs last month

after rising an upwardly revised 36,000 in October, the

Labor Department said in its closely watched employment report

on Friday. But it did not seem to signal a material shift in

labor market conditions.

"Data this morning was a Thanksgiving buffet with

payrolls spot on, revisions positive, but unemployment ticking

higher despite the participation rate falling. This print

doesn't kill the holiday spirit and the Fed remains on track to

deliver a cut in December.", said Lindsay Rosner, head of multi

sector investing at Goldman Sachs Asset Management.

Ellen Zentner, chief economic strategist at Morgan

Staney Wealth Management said although the economy is still

producing a healthy amount of job and income gains, "a further

increase in the unemployment rate tempers some of the shine in

the labor market and gives the Fed what it needs to cut rates in

December."

The 10-year yields fell 4.4 basis points this week and

the 2-year yields, 7.6 basis points.

Despite rising expectations the central bank will cut

rates at its upcoming meeting, Federal Reserve Governor Michelle

Bowman said

inflation risks to the economy remain real and labor market

data hard to interpret, and that requires caution with further

decisions on central bank rate cuts.

In addition, Chicago Federal Reserve Bank President

Austan Goolsbee

remained noncommittal

on whether he would support an interest rate cut at the

central bank's meeting this month, but reiterated to his view

that interest rates will fall over the next 12 months.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.340% after closing at 2.369% on December 5.

The 10-year TIPS breakeven rate was last at

2.258%, indicating the market sees inflation averaging about

2.3% a year for the next decade.