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10-year yield poised for weekly gain

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Fed's Kashkari supports rate cuts due to job market risks

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BofA sticks to view of one more cut in 2025

(Updates to afternoon US trading)

By Chuck Mikolajczak

NEW YORK, Sept 19 (Reuters) - U.S. Treasury yields were

mostly higher on Friday, with the benchmark 10-year note set for

its third straight gain and first weekly advance in five weeks

in the wake of the Federal Reserve's interest rate cut earlier

this week.

Yields had been steadily falling in recent weeks in

anticipation of the rate cut by the central bank, and the

10-year note touched a 7-month low of 3.994% last week after

some economic data indicated the labor market may be faltering.

But yields began ascending after the central bank cut rates by

25 basis points on Wednesday, as was widely anticipated, and

signaled more cuts were on the agenda. The climb continued on

Thursday after weekly initial jobless claims data and a gauge of

manufacturing activity in the mid-Atlantic region were stronger

than expected.

"Fair value on 10-year Treasuries, it's a pretty wide band, but

it's somewhere between 4% and 5%. We definitely went below the

low end, so bonds were overbought and so now you're getting a

little bit of an unwind of that," said Tony Welch, chief

investment officer at SignatureFD in Atlanta.

"I don't know that yields go all the way back up to 5% in

the midst of an ongoing easing cycle but we're within the range

of fair value here ... and we're probably more at the low end of

fair value than the high end so there is potential for rates to

back up a little more before it's done."

Yields on the 10-year last hit 5% in Oct. 2023.

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

rose 3.7 basis points to 4.141% after hitting a

two-week high of 4.145% and is up 8.1 basis points on the week.

The three straight advances would mark the longest streak for

the 10-year in a month.

The yield on the 30-year bond gained 3.9 basis

points to 4.759% and was also on track for a third straight

session of gains.

Markets are currently pricing in a 91.9% chance of a 25

basis point cut at the Fed's October meeting, and nearly 50

basis points worth of cuts through the end of the year,

according to LSEG data.

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

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

notes, seen as an indicator of economic

expectations, was at a positive 55.1 basis points after hitting

55.7, its highest since September 9.

Federal Reserve Bank of Minneapolis President Neel Kashkari on

Friday said job market risks warranted this week's rate cut and

likely reductions at the central bank's next two meetings.

New U.S. Federal Reserve Governor Stephen Miran, on leave

at the central bank from the Trump administration, defended

himself as an independent policymaker after dissenting in favor

of steep rate cuts just hours after joining the central bank and

said he will give a full rundown of his policy views on Monday.

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

typically moves in step with interest rate expectations for the

Fed, added 1.6 basis points to 3.584%.

Economists at Bank of America said they still see just one

more cut from the Fed in December in their base case.

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

Inflation-Protected Securities (TIPS) was last at

2.465% after closing at 2.474% on Thursday, its highest since

September 3.

The 10-year TIPS breakeven rate was last at

2.391%, indicating the market sees inflation averaging about

2.4% a year for the next decade.