By Gertrude Chavez-Dreyfuss

NEW YORK, (Reuters) – U.S. Treasury yields rose on Friday due to the increase in unemployment and consumer inflation for September. This further fueled expectations that the Federal Reserve would take aggressive monetary policy actions in order to curb the price rise.

The U.S. yield curves flattening continued as investors anticipated a Fed rate increase next year. The difference between U.S. 5-year versus 30-year yields narrowed at 72.9 basis point, its tightest level since late March 2020.

The yield curve for the U.S. 2-year interest rate was also flatter at 108.6 Basis points.

The rise in Treasury yields was extended after U.S. labor prices data increased significantly by more than 1% since 2001. This is because companies raised wages and provided benefits to workers who were severely short. The broadest indicator of labor cost, the Employment Cost Index, soared to 1.3% after rising 0.7% over the April-June period.

In a post after data release, Ian Lyngen of BMO Capital, who is head of U.S rates strategy wrote that this will “surely contribute to the upward pressure upon yields in the stomach of the curve because it speaks to the danger that inflation becomes self–perpetuating.”

The consumer price inflation remained high.

Personal consumption expenditures prices (PCE) gained 0.3% in August but rose 0.2% this month. After a similar increase in August, the core PCE price index grew 3.6% over the twelve months to September.

The data shows that futures for the fed funds rate have priced in an 85% chance of a quarter-point tightening, which is based on short-term expectations.

The benchmark U.S. 10-year yield rose 2 basis points to 1.5925% in morning U.S trading

U.S. 2-year yields were up slightly from 19-month highs, but still much higher than the previous day. Last up by 3 basis points, it was at 0.5325.

U.S. 5-year yields, which are also sensitive to Fed rates expectations, were up by 4 basis points at 1.2317.

In parallel with nominal Treasuries the U.S. Treasury Inflation Protected Securities Securities (TIPS), saw their yield rise by a significant amount. The U.S. real yield reached a peak of more than one week at -0.889%, and last stood at -0.938%. As a result, the annual 10-year breakeven rate fell to 2.54 percent.

Analysts believe that the increase in real yields is due to profit-taking before a Fed taper which will reduce purchases TIPs.

Additionally, the real yield has fallen by 30 basis points due to investor buying of TIPS in September. This could have led to profit-taking.

U.S. yields on the 20-year, and 30 year were still inverted Friday. U.S. yields on 20-year were at last up 2 basis point at 1.9986%. While those for the 30-year were at 1.9589%.

According to market participants, the inversion of yield on the long-end was caused by technical factors against a background of global curve flattening.

November 29 Friday at 10:19AM New York, / 1419 GMT

Prices Current Net

Yield Change %

(bps)

Three-month bill 0.0525 0.0532-0.003

6 month bills 0.0659 0.003

2-year note 99-180/256 0.52460.024

Note 99-126/256 0.7993 0.0227

Five-year note 99/130/256 1.2268.0.037

7-year note 99/76/256 1.4811 0.32

10-year note 97 1.5820.013

20-year bond 96-8/256 1.9936 0.018

30-year bond 101-8/256 1.9541 0.0909

DOLLAR SWAP SPREADS

Last (bps) Net

There is always change

(bps)

U.S. 2-year dollar swap 18.50 1.75

spread

U.S. 3-year dollar swap 19.25 1.75

spread

U.S. 5-year dollar swap 3.50 -1.25

spread

U.S. 10-year dollar swap -1.25 -2.00

spread

U.S. 30-year dollar swap -23.00 -1.50

spread