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Stephen Miran nominated to Federal Reserve board

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JPMorgan pulls forward Fed cut expectation

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September Fed cut expectations near 90%

(Updates to afternoon US trading)

By Chuck Mikolajczak

NEW YORK, Aug 8 (Reuters) -

U.S. Treasury yields rose on Friday, with that of the

benchmark 10-year note set for its first weekly gain in three

weeks after a series of lackluster auctions ahead of next week's

inflation data.

Yields have been choppy throughout the week, moving lower on

economic data that indicated little movement in the labor

market, while a services sector report hinted at a rekindling of

inflationary pressures. Yields turned higher later in the

session as the Treasury saw weak demand for a total of $125

billion in 3-year notes, 10-year notes and 30-year bonds.

The 10-year yield recorded its biggest weekly drop in two

months last week, after a soft government payrolls report

sharply increased expectations on the timing and amount of rate

cuts from the Federal Reserve this year.

Data next week will include multiple readings on inflation,

including the consumer price index (CPI), which will heavily

influence rate expectations for the central bank.

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

rose 3.9 basis points to 4.283% and was up 6.5 basis points on

the week, on track for its biggest weekly gain since early July.

"We probably came down as far as we're likely to, unless we

get really much weaker data, and so our call is we stall at

4.25%, said Jay Hatfield, CEO of Infrastructure Capital

Management in New York.

"It's normal for this to back up, because we don't know

what CPI is going to be," said Hatfield, who also cited the

uncertainty surrounding the makeup of the Federal Reserve board

of governors.

The yield on the 30-year bond rose 4.1 basis

points to 4.853% and was up 4.9 basis points on the week after

two straight weekly declines.

RATE EXPECTATIONS

Expectations for a rate cut of at least 25 basis points by

the Fed at its September meeting stand at 89.4%, according to

CME's FedWatch Tool, up from 80.3% a week ago. According to LSEG

data, the market is pricing in 58.3 basis points of cuts by the

end of the year.

St. Louis Fed President Alberto Musalem said on Friday the

Fed's inflation and jobs goals both face risks, with

policymakers needing to balance which seems the more serious

threat in deciding whether it is appropriate to reduce rates.

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

measuring the gap between two- and 10-year Treasury notes

, seen as an indicator of economic expectations,

was at a positive 52.5 basis points.

U.S. President Donald Trump on Thursday said he will

nominate Council of Economic Advisers Chairman Stephen Miran to

serve out the final few months of a newly vacant seat at the Fed

while the White House seeks a permanent addition to the central

bank's governing board and continues its search for a new Fed

chair.

Miran is replacing Fed Governor Adriana Kugler, who

announced a surprise resignation last week, effective on Friday.

In a note to clients, JPMorgan chief U.S. economist Michael

Feroli said he now expects the Fed to cut interest rates by 25

basis points at its September meeting, citing signs of weakness

in the labor market and uncertainty around Miran's nomination.

The two-year U.S. Treasury yield, which

typically moves in step with interest rate expectations,

advanced 2.2 basis points to 3.756% and was up 5.8 basis points

on the week, on pace for its biggest weekly gain since the week

ending July 3.