TREASURIES-Long-end yields hit highest since June on inflation worries

  • 10/6/2021
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SINGAPORE, Oct 6 (Reuters) - A sell-off in longer-dated Treasuries extended on Wednesday, pushing benchmark 10-year yields to their highest since June, as investors worried surging energy prices could drive broader inflationary pressures. U.S. crude futures hit an almost seven-year high on Wednesday amid a global fuel crunch that has unnerved markets and sent coal and natural gas prices soaring. The 10-year yield rose 4.5 basis points (bps) to 1.573% during the Asia session and has now climbed nearly 11 bps in three days. Yields on 20-year and 30-year Treasuries also jumped five bps or more to their highest since June. Yields rise when prices fall. “Markets are considering an interaction of factors,” said Vishnu Varathan, head of economics at Mizuho in Singapore, as the surge in energy prices comes as a Monday survey showed robust U.S. services demand and pressure on prices. “The underlying sense is there will be greater pass-through of inflation expectations and that could have escalated the pass-through to the yield,” he said. “(Investors) have been able to marry up the cost push with, potentially, demand pull.” On Tuesday breakeven inflation expectations on five-year Treasury Inflation-Protected Securities (TIPS) rose to 2.62%, the highest since late July and the same rate on 10-year TIPS hit 2.458%, the highest since June. Rising longer-dated yields also steepened the curve and the gap in yield between two-year and 10-year yields rose to 127 basis points, its widest since June. Two-year yields rose marginally to 0.2915%. Nominal yields are under added pressure from the expectation that the Federal Reserve will soon begin tapering asset purchases, and traders are awaiting U.S. labour data for clues as to the timing and tone of policy tightening. A resolutely hawkish Reserve Bank of New Zealand, which hiked rates on Wednesday, also seemed to add upward pressure to global rates, said Shane Oliver, chief economist at AMP Capital in Sydney. (Reporting by Tom Westbrook; Editing by Kim Coghill) Our Standards: The Thomson Reuters Trust Principles.

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