Bonds News

TREASURIES-Yields scale new heights as inflation expectations grow

TOKYO, Feb 17 (Reuters) - Benchmark 10-year U.S. Treasury yields rose to their highest level in a year on Wednesday in Asia as progress in passing a large fiscal stimulus package and rising inflation expectations pushed up rates.

Yields on 10-year Treasuries climbed to 1.3290%, the highest since Feb. 27 last year, before pulling back to 1.3023%.

The 30-year U.S. yield briefly advanced to a one-year high of 2.1120% and then pulled back slightly to 2.0838%.

U.S. President Joe Biden is drumming up support for a $1.9 trillion Covid-relief package. Inflation expectations are also rising as extremely cold weather curbs oil and gas output at the largest U.S. energy hub in Texas.

Both factors are bearish for Treasury prices, leading to strong upward pressure on yields. Some analysts say yields are likely to rise further as a robust rally in global stock markets causes many investors to shift money from bonds into equities.

“We would not expect the stocks/bonds correlation to break down while U.S, 10-year yields are sub 2%, especially if the central banks’ liquidity provision remains ample and the growth backdrop remains positive,” analysts at JP Morgan wrote in a research memo.

The spread between two-year and 10-year yields , which is the most closely watched part of the yield curve, briefly hit an almost four-year high of 120.80 basis points before flattening slightly to 118.20 basis points.

The curve between five-year and 30-year yields stood at 151.00 basis points, just shy of the highest since 2015.

Market speculation that the U.S. Federal Reserve will allow consumer prices to overshoot have pushed 10-year inflation expectations to their highest since 2014, with the Treasury Inflation-Protected Securities breakeven inflation rate last at 2.246%.

The Fed will release minutes from its most recent policy meeting on Wednesday, which will be closely watched for any comments on the level of yields.

The bond market faces an important test later on Wednesday with the auction of $27 billion of 20-year notes.

Reporting by Stanley White Editing by Shri Navaratnam