(Recast, update yields and debt ceiling state; add analyst commentary) By Karen Pierog CHICAGO, October 4 (Reuters) – U.S. Treasury yields rose on Monday, peaking sharply at l shorter end of the yield curve as Washington wrangled over the debt ceiling. The market was also targeting the release of employment data later this week in September, which could pave the way for the Federal Reserve to reduce asset purchases. The benchmark 10-year yield, which reached its highest level since June at 1.567% last week, last increased 1.7 basis points to 1.4841%. The yield on one-month Treasury bills climbed to 0.1450%, the highest since October 2020. It was last at 0.1217%. Yields at the shorter end of the curve have been high as the US Treasury considers October 18 as the date it could run out of liquidity, potentially resulting in default without raising or suspending the debt ceiling. But Tom Simons, money market economist at Jefferies in New York City, said information released by the Treasury Department on Friday indicated the government had more debt issuance capacity, suggesting the “cut-off date” might be. postponed to November 4. President Joe Biden said on Monday the government could exceed its $ 28.4 trillion debt limit in a historic default unless Republicans join Democrats in voting to increase it. In a letter to Biden, Republican Senate Leader Mitch McConnell reiterated that Democrats have the option of adopting an increase in the debt limit on their own. Meanwhile, Senate Democratic Majority Leader Chuck Schumer said if no progress is made this week, the chamber will sit on the weekend and possibly next week. Meanwhile, the market was anticipating September employment data on Friday. Fed Chairman Jerome Powell said the central bank could start cutting its $ 120 billion monthly bond purchases in November as long as U.S. job growth through September is “reasonably strong”. George Gonçalves, head of US macro strategy at MUFG in New York City, said the market was bracing for a decent jobs report that would meet the Fed’s criteria for the cut. “It must be a really incredible number to get us out of the peak (in the 10-year Treasury yield) that we saw last week,” he added. The yield on five-year bonds, which is more sensitive to intermediate interest rate hikes, was last up 1.4 basis points to 0.9474%. A closely watched part of the yield curve that measures the spread between two-year and ten-year Treasury bill yields was steeper by less than a basis point to 119.93 basis points. October 4 Monday 3:31 p.m. New York / 1931 GMT Price Current net yield Change in% (bp) Three-month notes 0.035 0.0355 -0.002 Six-month notes 0.05 0.0507 0.000 Two-year note 99-240 / 256 0 , 2816 0.018 Three-year note 99-160 / 256 0.5034 0.018 Five-year bond 99-166 / 256 0.9474 0.014 Seven-year bond 99-212 / 256 1.2758 0.015 10-year bond 97-220 / 256 1.4841 0.017 20-year bond 96-4 / 256 1.9939 0.013 30-year bond 98-216 / 256 2.0519 0.012 SPREADS DOLLAR SWAP Last (bps) Net change (bps) 2-year US dollar swap 9, 00 -1.75 3-year US dollar swap spread 13.00 -1.25 5-year US dollar swap spread 7.75 -1.00 10-year US dollar swap spread 0.75 -0.75 US dollar swap spread at 30 years -26.75 -0.25 spread (Report by Karen Pierog; edited by Dan Grebler)