Inflation worry sends two-year yields to more than 18-month high; auctions eyed

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NEW YORK — Yields on the U.S. two-year

Treasury note jumped to their highest level in more than 18

months on Tuesday, as climbing oil prices added to the

inflationary picture and heightened expectations that the

U.S. Federal Reserve may be forced to take action earlier

than currently anticipated.

The yield on the 2-year was up 1.8 basis

points to 0.336% after reaching as high as 0.356%, its

highest level since March 25, 2020.

Brent crude prices have climbed for more than

five straight weeks, hitting a two-year high of $84.60 on

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Monday, as climbing demand and clogs in the supply chain have

contributed to rising prices in other commodities as well.

The yield on the two-year eased somewhat as crude prices

oscillated around the unchanged mark.

“Since we have had consecutive days of energy costs going

higher the market feels as if the Fed’s hands might be

getting a little more tied,” said Jim Barnes, director of

fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

“The transitory theme is still there; it is just that

before transitory was tied more to bottlenecks and supply

issues, and now on top of that you could throw in commodity

costs going higher … the market is kind of throwing up

their hands a little bit and saying there is inflationary

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pressures coming from different angles, which could make

things problematic for the Fed.”

Federal Reserve Vice Chair Richard Clarida will speak on

the U.S. economic outlook and monetary policy at 11:15 a.m.

EDT (1515 GMT) and Federal Reserve Bank of Atlanta President

Raphael Bostic speaks on inflation at 12:30 p.m. EDT (1630

GMT).

The yield on 10-year Treasury notes was down

1.8 basis points to 1.587%.

Investors will closely monitor Wednesday’s consumer price

index data for September, with expectations calling for a

monthly rise of 0.3%.

The U.S. Treasury will auction $58 billion of three-year

notes at 11 a.m. EDT (1500 GMT) and $38 billion of 10-year

notes at 1 p.m. EDT (1700 GMT) on Tuesday. An auction of $24

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billion of 30-year bonds is scheduled on Wednesday.

The yield on the 30-year Treasury bond was

down 4.4 basis points to 2.116%.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at 125.0 basis points after hitting a

3-1/2-month high of 129.7 on Friday.

October 12 Tuesday 10:14AM New York / 1414 GMT

Price

US T BONDS DEC1 158-12/32 0-29/32

10YR TNotes DEC1 131-44/256 0-84/256

Price Current Net

Yield % Change

(bps)

Three-month bills 0.05 0.0507 0.000

Six-month bills 0.0575 0.0583 -0.003

Two-year note 99-213/256 0.3359 0.018

Three-year note 99-92/256 0.5964 0.016

Five-year note 99-24/256 1.0629 0.015

Seven-year note 99-28/256 1.3846 -0.002

10-year note 96-240/256 1.5874 -0.018

30-year bond 97-112/256 2.1162 -0.044

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 11.75 0.75

spread

U.S. 3-year dollar swap 15.25 1.00

spread

U.S. 5-year dollar swap 8.25 -0.25

spread

U.S. 10-year dollar swap 2.00 0.00

spread

U.S. 30-year dollar swap -24.00 1.00

spread

(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis)