Treasury Yields Reach Weekly Highs as Inflation Risk Mounts

Darren Shames, Global Head of Rates Sales at Nomura, discusses how fiscal and geopolitical pressures are shaping long-end yield curves.

Treasuries fell for a fourth day — lifting yields to the highest levels in several weeks — on concern that rising crude oil prices will stoke inflation.

Yields across maturities were higher by two to four basis points as the US benchmark crude oil futures contract topped $79 a barrel for the first time in a year. It’s climbed from under $70 this week after the US attacked Iran on Feb. 28, leading traders to wager on a later start to any Federal Reserve interest-rate cuts this year.

While the selloff stalled amid declines in US equities and a flurry of buying in Treasury futures, it was backstopped by the US government’s weekly tally of new jobless claims. The initial claims figure was slightly lower than economists estimated, a sign of labor-market strength and another challenge to wagers on Fed interest-rate cuts that benefit bonds.

“The market is not going to trade on economic data today,” said John Brady, managing director at RJ O’Brien. “It remains about the widening war in the Middle East and the energy markets.”

Meanwhile, the February US employment report to be released Friday is expected to show deceleration in job growth, potentially reviving the case for Fed rate cuts.

Yields on two-year notes, more closely tied than longer tenors to Fed rate changes, rose as much as five basis points toward 3.60%, the highest since Jan. 28. They’re about 20 basis points higher on the week, the biggest increase since April. The 10-year yield was around 4.14%, the highest since Feb. 12.

Speaking Thursday, Richmond Fed President Tom Barkin said inflation risk stemming from fuel prices had policy implications, and that the trend in consumer prices “certainly puts pause to any conclusion that we’re done fighting this.”

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