TREASURIES-Yields surge on improved unemployment figures

(Updates with trading, analyst comment) By Ross Kerber and Sinéad Carew June 5 (Reuters) - U.S. Treasury yields spiked up on Friday after a Labor Department report showed a much lower than expected May unemployment rate. The benchmark 10-year yield was up 10.5 basis points at 0.9252%, its first time above 0.9% since March 20 and continuing a steady march higher in recent days as investors sold government bonds and took on riskier assets. A key part of the U.S. Treasury yield curve also rose dramatically. The Labor Department's monthly employment report showed the jobless rate dropped to 13.3% last month from 14.7% in April. Economists polled by Reuters had forecast the jobless rate jumping to 19.8% in May. While still enormous, the latest figure reflected an improvement in the job market as businesses reopened after closing due to the ongoing COVID-19 pandemic. "The sell-off in the bond market in the last few weeks seems to be justified," said Subadra Rajappa, head of U.S. rates strategy for Societe Generale in New York. The report also fueled a rise in stocks and fed a conversation about whether the U.S. economy could recover quickly, a so-called V-shaped recovery, or more slowly in a U-shape. Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis, said the data pointed to a quicker comeback, assuming new virus cases do not force another shutdown round. "Across the financial markets is the same message today. It’s a V recovery message. We'll see if it lasts," Paulsen said. The 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 71 basis points, about 16 basis points higher than Thursday's close and its highest since February 2018. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 2.2 basis points at 0.2161% in afternoon trading. June 5 Friday 1:53PM New York / 1753 GMT Price US T BONDS SEP0 171-30/32 -2-2/32 10YR TNotes SEP0 136-248/256 -0-212/2 56 Price Current Net Yield % Change (bps) Three-month bills 0.155 0.1572 0.002 Six-month bills 0.18 0.1832 0.008 Two-year note 99-210/256 0.2161 0.022 Three-year note 99-128/256 0.2962 0.043 Five-year note 98-220/256 0.4822 0.078 Seven-year note 98-108/256 0.7324 0.095 10-year note 97-40/256 0.9252 0.105 30-year bond 89-80/256 1.7075 0.081 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.50 0.75 spread U.S. 3-year dollar swap 5.75 1.00 spread U.S. 5-year dollar swap 4.25 0.50 spread U.S. 10-year dollar swap -2.00 -1.00 spread U.S. 30-year dollar swap -49.00 -1.00 spread (Reporting by Ross Kerber in Boston and by Sinead Carew in New York Editing by Nick Zieminski)