10-year yields highest since 2011 before expected Fed rate hike

© Reuters. FILE PHOTO: A U.S. dollar note is seen in front of a stock graph in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration

By Karen Brettell

NEW YORK (Reuters) - Benchmark 10-year U.S. Treasury yields jumped to their highest level since 2011 on Monday as investors adjusted for the likelihood that the Federal Reserve will hike rates higher and for longer than previously expected as inflation remains near multi-decade highs.

Data last week showed higher-than-expected consumer prices in August, dashing hopes that the worst of rising price pressures may be in the past.

It also made it more likely that the Fed will hike rates by another 75 basis points when it concludes its two-day meeting on Wednesday. Traders are now pricing in a 77% chance of a 75 basis points hike and a 23% likelihood of a 100 basis points increase.

Investors are grappling to determine how long the Fed will raise rates as monetary tightening by central banks globally also raises concerns about growth.

“They’ve been pointing to a series of rate hikes and this is one of them, but we’re not going to hear anything this week about when rate hikes might end,” said Jim Vogel, an interest rate strategist at FHN Financial in Memphis, Tennessee.

“Right now we’ve got a series of concerns about the global economy, we have varying reports, but … there’s no noticeable crash that says, oh now we have seen central banks push things too far,” Vogel added.

Benchmark 10-year yields reached a high of 3.518%, the highest since April 2011, before falling back to 3.479%.

Two-year yields reached 3.961%, the highest since November 2007, and were last 3.942%.

The closely watched yield curve between two-year and 10-year notes inverted as far as negative 48 basis points. An inversion in this part of the yield curve is viewed as a reliable indicator that a recession will follow in one-to-two years.

The Treasury will sell $12 billion in 20-year bonds on Tuesday, and $15 billion in 10-year Treasury Inflation-Protected Securities (TIPS) on Thursday.

September 19 Monday 9:16AM New York / 1316 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 3.1275 3.1948 0.028

Six-month bills 3.74 3.863 0.057

Two-year note 98-183/256 3.9422 0.083

Three-year note 98-230/256 3.8942 0.079

Five-year note 97-122/256 3.6876 0.062

Seven-year note 97-16/256 3.6067 0.045

10-year note 93-240/256 3.4788 0.032

20-year bond 94-80/256 3.7842 -0.009

30-year bond 90-152/256 3.5104 -0.009

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 37.50 -0.50

spread

U.S. 3-year dollar swap 17.25 -0.25

spread

U.S. 5-year dollar swap 8.25 0.25

spread

U.S. 10-year dollar swap 7.00 0.00

spread

U.S. 30-year dollar swap -30.50 0.50

spread