TREASURIES-U.S. yields hit new highs amid continued inflation fears

(Updates prices) By Davide Barbuscia NEW YORK, Aug 30 (Reuters) - U.S. Treasury yields edged higher on Tuesday, reversing an early morning rally after a sharp rise in job openings added to investor worries about the Federal Reserve's aggressive monetary tightening measures. Some U.S. government bond yields had decreased slightly earlier on Tuesday after inflation data from Europe which was either within consensus or lower. But that proved to be short-lived, with rising yield pressures continuing to drive the market after comments by Fed Chair Jerome Powell on Friday that indicated the U.S. central bank will keep raising interest rates to fight inflation even as that causes pain for households and businesses. "Powell hardly hedged his hawkish views at all this time around," said John Vail, Chief Global Strategist at Nikko Asset Management. Demand for labor showed no sign of cooling as data showed U.S. job openings rose to 11.239 million in July, which could keep the Fed on its aggressive monetary policy tightening path. Benchmark 10-year Treasury yields were at 3.108%, the highest since the end of June, while two-year note yields climbed to 3.466%, hitting a new 15-year high. The Fed has raised its benchmark overnight interest rate by 225 basis points since March but the rapid tightening of financial conditions has led investors to weigh inflation concerns against recessionary fears. On Tuesday, Richmond Federal Reserve Bank President Thomas Barkin said recession was a risk of the Fed's efforts to bring inflation down to a 2% goal, but that it does not need to be "calamitous." New York Federal Reserve Bank President John Williams, who is Powell's No. 2 on the Fed's policymaking panel, on Tuesday said the Fed will likely need to get its policy rate above 3.5% and is unlikely to cut interest rates at all next year. "The Fed is going to do what it takes to bring inflation down, and won't falter in the face of an economic slowdown," said Dean Smith, chief strategist at FolioBeyond. Fed funds futures' traders on Tuesday priced in a 72.5% chance that the Fed will increase rates by 75 basis points next month, and bet that rates would rise to a high of 3.9% by March next year, with some rate cuts priced in for the second half of next year. The closely watched yield curve measured by the gap between two- and 10-year yields remained strongly inverted at minus 36 basis points. An inversion is seen by many as a reliable signal of an approaching recession. August 30 Tuesday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 2.8825 2.9442 -0.005 Six-month bills 3.245 3.3449 -0.016 Two-year note 99-150/256 3.4661 0.039 Three-year note 99-6/256 3.4751 0.026 Five-year note 99-78/256 3.2769 0.014 Seven-year note 99-106/256 3.2192 0.004 10-year note 96-244/256 3.1081 -0.002 20-year bond 98-100/256 3.4875 -0.012 30-year bond 95-204/256 3.2197 -0.027 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 35.50 1.25 spread U.S. 3-year dollar swap 14.50 1.00 spread U.S. 5-year dollar swap 8.25 0.25 spread U.S. 10-year dollar swap 9.00 0.50 spread U.S. 30-year dollar swap -28.00 1.00 spread (Reporting by Davide Barbuscia; editing by Jonathan Oatis)