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TREASURIES-Yields rise as Fed's Powell stays hawkish

·4 min read

(Adds comments from Fed's Evans, data, inflation expectations, updates prices) By Karen Brettell NEW YORK, Sept 8 (Reuters) - U.S. Treasury yields rose on Thursday after Federal Reserve Chairman Jerome Powell reiterated that the U.S. central bank’s priority is to tackle inflation, before highly anticipated consumer price data is due next week. Powell said that the Fed is "strongly committed" to fighting inflation, but there remains hope it can be done without the "very high social costs" involved in prior campaigns to control surging prices. "It was consistent with his Jackson Hole remarks - the need to hike rates more to get inflation lower. That’s really what the crux of the message was,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. Chicago Fed President Charles Evans also said on Thursday that getting high inflation down is "job one," and to do so the Fed "could very well" raise interest rates by another 75 basis points this month. Fed officials are heading into a blackout period before their Sept. 20-21 meeting, when the Fed is expected to raise rates by another 75 basis points, increasing the fed funds rate to 3.0% to 3.25%. Consumer price inflation data for August due on Tuesday will come after the blackout period begins. Data on Thursday showed that employment remains strong. The number of Americans filing new claims for unemployment benefits fell last week to a three-month low. Concerns that central banks will remain hawkish and inflation will remain persistently high if energy prices rise heading into winter has sent government bond yields higher globally in recent weeks. The European Central Bank on Thursday raised its key interest rates by an unprecedented 75 basis points and signaled further hikes, prioritizing the fight against inflation even as the bloc's economy is heading for a likely winter recession. Yields had dipped earlier on Thursday as oil prices fell, as China's extension of lockdown measures to curb the COVID-19 spread exacerbated concerns that a slowdown in economic activity globally would hit fuel demand. A surging U.S. currency against the Japanese yen, euro and other currencies has also added demand for U.S. bonds as investors seek a place to park their cash in dollar-denominated assets. Benchmark 10-year note yields rose three basis points to 3.292%. They have risen from a four-month low of 2.516% on Aug. 2, but are holding below the 11-year high of 3.498% reached on June 14. Two-year yields increased four basis points to 3.491%, below the 3.551% level hit last Thursday, which was the highest since November 2007. The yield curve between two-year and 10-year notes remained inverted at minus 20 basis points, an indicator that a recession is likely in the next one to two years. The inversion is less severe, however, than the minus 56 basis points level reached on Aug. 10. Inflation expectations also fell. Breakeven rates on five-year Treasury Inflation-Protected Securities (TIPS) reached a two-month low of 2.50%, indicating expectations of 2.50% inflation per year for the next five years. September 8 Thursday 3:00PM New York / 1900 GMT Price Current Net Yield % Change (bps) Three-month bills 2.965 3.0286 -0.018 Six-month bills 3.3625 3.4678 0.023 Two-year note 99-139/256 3.4911 0.044 Three-year note 98-216/256 3.5431 0.049 Five-year note 98-196/256 3.3966 0.037 Seven-year note 98-112/256 3.3782 0.033 10-year note 95-112/256 3.2921 0.027 20-year bond 95-140/256 3.6925 0.034 30-year bond 91-200/256 3.442 0.037 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 36.00 -1.25 spread U.S. 3-year dollar swap 11.00 -2.00 spread U.S. 5-year dollar swap 5.75 -0.75 spread U.S. 10-year dollar swap 7.00 -0.50 spread U.S. 30-year dollar swap -32.25 0.00 spread (Reporting by Karen Brettell; editing by Jonathan Oatis and Nick Zieminski)