TREASURIES-U.S. yields hit fresh highs as rate hike concerns grip markets

(Adds details, updates prices) By Davide Barbuscia NEW YORK, Sept 26 (Reuters) - U.S. Treasury yields hit fresh highs on Monday, rising in tandem with euro zone and British government debt yields amid concerns that central banks globally will keep tightening monetary policy to curb stubbornly high inflation. Global bond yields - which move inversely to prices - kept climbing after a week that saw the Federal Reserve deliver its third straight 75 basis point rate hike and the British pound slide to a 37-year low against the dollar after the country's new finance minister unleashed historic tax cuts and huge increases in borrowing. Sterling dropped further on Monday, and a renewed sell-off in British gilts pushed euro zone yields higher. Atlanta Fed President Raphael Bostic said on Monday events in the United Kingdom could raise economic stress in Europe and the United States. Two-year Treasury yields, which tend to be more sensitive to interest rate changes, rose to a fresh 15-year high of 4.312%, and benchmark 10-year note yields rose nearly 20 basis points from their Friday close, climbing to an intra-day high of 3.9%, the highest since April 2010. "Back-to-back statements from Fed Chair Jerome Powell, first from Jackson Hole and then last week, were clear and unambiguous that the inflation has to be brought under control by any means necessary ... finally the market is listening," said Dean Smith, chief strategist at FolioBeyond. Reflecting expectations of tighter monetary policies, real yields - represented by the yield on Treasury Inflation-Protected Securities (TIPS) - jumped on Monday. The five-year TIPS yield climbed about 25 basis points to 1.87%, its highest since January 2009, and the 10-year real yield rose over 20 bps hitting 1.57%, its highest since April 2010. Concerns that a Fed, dead-set on bringing inflation down, may tighten financial conditions to the point of pushing the economy into sharp contraction continued to grip markets, but some investors' expectations that the Fed may soon embark on a policy U-turn to stimulate a dwindling economy were dashed when Powell last week said that he and his fellow policymakers would "keep at" their battle to beat down inflation. Bringing down price pressure is going to require "a steepening of the yield curve, higher long-term rates and some actually observed lower inflation prints, and we're not going to see that this year," Smith said. The inversion in the yield curve between two-year and 10-year notes was at minus 44.5 basis points on Monday, still deep in negative territory but steeper than last week when that curve - seen as signaling an impending recession - was the most inverted in at least two decades. Boston Fed President Susan Collins said on Monday that the Fed's need to bring down high inflation will cause the jobless rate to rise but that a recession was not inevitable. Fed officials said last week they see rates rising to 4.6% in 2023, much higher than previous views, and projected year-end economic growth for 2022 at 0.2%, rising to 1.2% in 2023. "The Fed still sees positive growth this year and sees it picking up next year. But it also wants to see evidence core inflation is on a decisive 2% trajectory beyond 2023 before it stops hiking," the BlackRock Investment Institute said in a note on Monday. "This soft landing doesn't add up to us ... We think the Fed is not only underestimating the recession needed but ignoring that it’s logically necessary," it said. September 26 Monday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 3.2025 3.272 0.077 Six-month bills 3.7875 3.913 0.026 Two-year note 98-14/256 4.3125 0.098 Three-year note 97-138/256 4.3933 0.164 Five-year note 95-116/256 4.1549 0.171 Seven-year note 94-100/256 4.062 0.188 10-year note 90-208/256 3.8777 0.181 20-year bond 91-56/256 4.0204 0.125 30-year bond 87-116/256 3.697 0.085 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 34.25 -5.50 spread U.S. 3-year dollar swap 7.50 -6.75 spread U.S. 5-year dollar swap 4.75 -2.25 spread U.S. 10-year dollar swap 1.50 -2.25 spread U.S. 30-year dollar swap -39.50 -3.25 spread (Reporting by Davide Barbuscia; Editing by Nick Zieminski and Andrea Ricci)

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