Treasuries Slide as Inflation Concerns Keep Rate-Hike Bets Alive

Treasuries extended their slump in New York, driving the yield on the benchmark 10-year note up by the most in more than three weeks, as renewed inflation concerns and economic data supported expectations for multiple Federal Reserve rate hikes in coming months.

Intermediate-dated benchmarks led the decline, with yields on five-, seven-and 10-year Treasuries rising by around 12 basis points. The moves were spurred by hawkish comments from Fed Governor Christopher Waller and gained steam after stronger-than-expected reports on US consumer confidence and Chicago-area business conditions.

Reinforcing speculation that central banks are set to tighten policy during the summer, oil advanced to a two-month high while European inflation data for May exceeded economists’ forecasts.

“There is a lot of inflation uncertainty,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “It’s one thing to have an energy price shock, another matter to see that being sustained for a longer period of time.”

Traders are almost fully pricing two half-point rate increases over June and July, and see even odds of a third such hike in September, swaps show. The trajectory of Fed policy rests with how inflation behaves in the coming months.