U.S. Markets open in 2 hrs 32 mins
  • S&P Futures

    -1.50 (-0.04%)
  • Dow Futures

    +37.00 (+0.12%)
  • Nasdaq Futures

    -38.00 (-0.33%)
  • Russell 2000 Futures

    +3.20 (+0.18%)
  • Crude Oil

    +0.99 (+1.12%)
  • Gold

    -2.80 (-0.16%)
  • Silver

    +0.03 (+0.15%)

    0.0000 (-0.0000%)
  • 10-Yr Bond

    0.0000 (0.00%)
  • Vix

    +1.87 (+6.55%)

    +0.0030 (+0.2654%)

    -0.1280 (-0.0882%)

    -170.12 (-0.84%)
  • CMC Crypto 200

    -8.81 (-1.90%)
  • FTSE 100

    +7.35 (+0.11%)
  • Nikkei 225

    -195.19 (-0.71%)

TREASURIES-Short-end U.S. yields rise on 'sticky' inflation concerns

·4 min read

(Adds comment, fresh prices) By Herbert Lash NEW YORK, Sept 14 (Reuters) - Short-end Treasury yields rose on Wednesday after producer price data, coupled with consumer prices the day before, suggest some inflation is becoming sticky and that the Federal Reserve will keep aggressively tightening monetary policy. The two-year U.S. Treasury yield, a bellwether for interest rate expectations, rose another 2.2 basis points to 3.778% after jumping 18.5 bps on Tuesday following consumer price data that failed to show inflation had peaked as expected. Expectations now call for the Fed to hike interest rates by least 75 basis points next week, with fed fund futures showing a 28% chance policymakers will raise rates by 100 bps when they meet on Sept. 20-21, according to the CME Fedwatch Tool. "The big picture coming through in all these readings right now is how sticky inflation is," said Dec Mullarkey, managing director at SLC Management in Wellesley Hills, Massachusetts. "The Fed will have to be more persistent in terms of rate increases and go deeper on those, and probably that's going to take longer and therefore you're raising the risk of a recession," he said. U.S. producer prices fell for second straight month in August as energy prices declined further. The producer price index for final demand dipped 0.1% after slipping 0.4% in July, the Labor Department said. In the 12 months through August, the PPI increased 8.7% after a 9.8% rise in July. Stickier prices continue to rise rapidly and will keep inflation elevated in 2023, said Bill Adams, chief economist for Comerica Bank in Dallas. The longer inflation stays high, the more the Fed will raise rates and the more likely the U.S. central bank will push the economy into a recession, Adams said in e-mail commentary. Prices for services will remain elevated as long as the labor market remains tight and not follow declining durable goods prices, said Jeffrey Roach, chief economist for LPL Financial in another e-mail commentary. The gap between yields on two- and 10-year Treasury notes , seen as a recession warning when the yield curve inverts, widened to -37.2 basis points. A week ago the gap had narrowed to -13.0 bps. The yield on 10-year notes fell 1.5 basis points to 3.408% and was down 4.1 basis points to 3.467% on 30-year bonds. "The market is going to hang around these levels for now and see what the Fed is thinking in terms of its forecasts" next week, said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco. "The long end isn't as impacted as the short end on the near-term Fed outlook," she said. "As long as the Fed continues to show its muscle, the 10-year can pretty much stay right where it is because you would suspect that all of the tightening would finally be successful in bringing down inflation." The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.684%. The 10-year TIPS breakeven rate was last at 2.471%, indicating the market sees inflation averaging almost 2.5% a year for the next decade. The U.S. dollar 5 years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.462%. Sept. 14 Wednesday 2:55 PM New York / 1855 GMT Price Current Net Yield % Change (bps) Three-month bills 3.1425 3.2117 -0.051 Six-month bills 3.6925 3.815 0.024 Two-year note 99-2/256 3.7797 0.024 Three-year note 99-56/256 3.7779 0.022 Five-year note 97-232/256 3.5895 -0.002 Seven-year note 97-144/256 3.5229 -0.010 10-year note 94-124/256 3.4101 -0.013 20-year bond 94-236/256 3.7387 -0.024 30-year bond 91-76/256 3.4698 -0.038 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 40.00 5.50 spread U.S. 3-year dollar swap 16.00 3.25 spread U.S. 5-year dollar swap 6.50 2.00 spread U.S. 10-year dollar swap 7.00 1.00 spread U.S. 30-year dollar swap -31.25 1.00 spread (Reporting by Herbert Lash; Editing by Jonathan Oatis and Nick Zieminski)