Treasury yields rise

US Treasury yields rose on Thursday after data suggested the US labour market is tightening and inflation is beginning to gain traction, which prompted investors to sell government debt. US consumer prices posted their biggest increase in six months, while housing starts surged to a 9-year high and jobless claims fell to the lowest level since November 1973.
The data releases came shortly after the publication of prepared remarks from Federal Reserve Chair Janet Yellen, who said US overnight interest rates could be raised "relatively soon" if economic data keeps pointing to an improving labor market and rising inflation. She reiterated those statements in Congressional testimony during which she said the election of Donald Trump as US president had done nothing to change the Fed's plans for a near-term rate increase.
"Yellen is saying it's full steam ahead for a Fed hike in December," said Luke Bartholomew, fixed income investment manager at Aberdeen Asset Management. "The big question is what happens after that. Trump's election has given investors plenty of reason to question the lower for longer mantra." The yield curve steepened with 10- and 30-year Treasury debt yields trading near their highest levels of this year.
Rising inflation hurts the value of already-issued bonds by making their interest payments worth less. Treasuries with longer-dated maturities are the most sensitive as they have the longest range for investors to receive the minimised compensation. The 10-year note fell 16/32 in price to yield 2.281 percent. The 30-year bond fell 1-10/32 in price to yield 2.992 percent. Yields on the 2-year note hit their highest since January 5, rising to 1.034 percent.
Selling increased further after solid demand at an $11 billion auction of 10-year TIPS. The 10-year inflation breakeven rate, or the yield difference between 10-year Treasury Inflation Protected Securities and regular 10-year Treasury notes, rose more than 5 basis points from late on Wednesday, according to Tradeweb. The move higher in yields also extended the gap between 10-year government bonds in the US and Germany to 200 basis points, its widest level since at least 1990. In contrast to higher US interest rate expectations under Trump, the European Central Bank is expected to maintain an ultra-loose monetary policy to boost subdued inflation in the euro zone.