(Adds comment, refreshes prices) By Herbert Lash NEW YORK, Sept 30 (Reuters) - U.S. Treasury yields were little changed on Friday after a volatile week rocked by a Bank of England intervention that sent bond prices soaring only to later slip as Federal Reserve officials reiterated interest rates would stay higher for longer. A U.S. Commerce Department report on Friday showed inflation running at a red-hot pace, providing the Fed little reason to ease a rate-hiking regime that has lifted U.S. borrowing costs faster this year than at any time since the 1980s. Excluding volatile food and energy, the personal consumption expenditures price index jumped 0.6% in August after being unchanged the prior month. The core PCE price index rose 4.9% on a year-on-year basis after rising 4.7% in July. The market is concerned about the pace of inflation and how fast it declines, said Andrzej Skiba, head of the BlueBay US fixed income team at RBC Global Asset Management. "We need inflation coming down because in the absence of a meaningful move lower, the Fed will be unable to pivot policy and support markets even in the face of recession," Skiba said. At the end of a quarter when investors readjust portfolios, the PCE reading got a bit lost and the market entered a wait-and-see mode as it looks to data on U.S. consumer prices on Oct. 13. "The market is still trying to make sense of the extent of collateral damage from the UK dislocation and any forced selling of assets and what that means for the broader risk complex," Skiba said. Just before the BoE's intervention on Wednesday, the yield on the 10-year Treasury briefly hit a 12-year high of 4.004%. But it later plunged that day more than 26 basis points to 3.707%, its biggest single-day drop since March 2009. On Friday, the two-year's yield, which typically moves in step with rate expectations, fell 0.5 basis points to 4.165 %. The gap between two- and 10-year yields, a recession harbinger, eased back a bit to -40.9 basis points. Fed Vice Chair Lael Brainard said on Friday the U.S. central bank will need to maintain higher rates for some time and must guard against lowering them prematurely. "Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target. For these reasons, we are committed to avoiding pulling back prematurely," she said in prepared remarks for a conference in New York. The Fed last week raised its median forecast for core PCE inflation to 4.5% this year from its previous estimate of 4.3% in June. Its estimate for core inflation in 2023 was boosted to 3.1% from the previously projected 2.7% in June. The yield on 10-year Treasury notes rose 1.1 basis points to 3.758%, and the 30-year yield added 3.6 basis points to 3.729%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.186%. The 10-year TIPS breakeven rate was last at 2.141%, indicating the market sees inflation averaging about 2.1% a year for the next decade. The rate has declined from more than 2.6% it showed five weeks ago. The U.S. dollar five years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed's quantitative easing, was last at 2.170%. Sept. 30 Friday 1:53 PM New York / 1753 GMT Price Current Net Yield % Change (bps) Three-month bills 3.2475 3.3186 0.005 Six-month bills 3.8075 3.9345 0.020 Two-year note 100-41/256 4.1652 -0.005 Three-year note 98-24/256 4.193 0.005 Five-year note 100-158/256 3.9873 0.008 Seven-year note 99-226/256 3.8943 0.011 10-year note 91-192/256 3.7582 0.011 20-year bond 91-28/256 4.0293 0.030 30-year bond 86-240/256 3.7287 0.036 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap spread 28.50 0.00 U.S. 3-year dollar swap spread 6.75 0.00 U.S. 5-year dollar swap spread 5.25 0.75 U.S. 10-year dollar swap spread 4.75 0.50 U.S. 30-year dollar swap spread -41.50 1.00 (Reporting by Herbert Lash; Editing by Jonathan Oatis and Andrea Ricci)
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