LONDON, Nov 12 (Reuters) - Selling in U.S. Treasury markets returned on Friday, with five-year bond yields climbing to their highest since early 2020 as concern over rising inflation gripped markets once again. With U.S. bond markets closed on Thursday for a holiday, trading picked up where it left on Wednesday after economic data showed the biggest annual rise in U.S. inflation in 31 years. In European trade, five-year Treasury yields rose to as high as 1.26%, the highest since February 2020. They were last up almost 4 basis points (bps) on the day and have surged almost 20 bps this week - and are headed for the biggest weekly jump in two years. Two-yield Treasury yields also traded 4 bps higher on the day at 0.54%, reflecting investor unease that rising inflation could prompt the Federal Reserve to raise interest rates sooner rather than later. “It’s all about the June Fed meeting in my mind, which is almost priced in as a hike,” said Peter Chatwell, head of multi-asset strategy at Mizuho in London. “We’re at the inflection point whereby any further hawkish repricing of dollar rates markets is likely to weigh much more heavily on risk assets than it has in the past.” U.S. money markets are currently fully pricing in a 25 bp rate rise from the Fed in July next year. In contrast, longer-dated bond yields were flat to slightly higher on the day , although market gauges of long-term inflation expectations held near highs hit on Wednesday. The 10-year breakeven rate held near 2.72%, the highest since May 2006. Attention was expected to turn later in the session to the University of Michigan’s preliminary consumer sentiment index for November, as well as the JOLTS job openings for September. Reporting by Dhara Ranasinghe Editing by Mark Potter