Traders push yields higher as inflation concerns linger

Traders sent longer-term US Treasury yields higher and steepened the yield curve on Wednesday after comments by US Federal Reserve Chairman Jerome Powell failed to fully dampen inflation concerns.

The benchmark 10-year yield was up 4.1 basis points at 1.4046% in morning trading, its first time above 1.4% since a year ago, and reached as high as 1.435%

The accelerating bond selloffs also pushed up a closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations. It was at 128 basis points, about five basis point higher than Tuesday's close and the widest since late 2016.

Other parts of the yield curve were also wider as investors sold longer-term US debt along with other sovereigns. The gap between five-year notes and 30-year bonds was at 164 basis points, the most since 2014.

Analysts said the trading reflected a range of factors including testimony from Powell on Tuesday that the US central bank would continue to provide economic support.

Speaking to the US House Financial Services Committee on Wednesday, Powell said he was confident inflation can reach 2% and moderately exceed it.

"We get these breakouts now and then," said Padhraic Garvey, head of research for ING Americas.

Patrick Leary, chief market strategist and senior trader at Incapital, said the trading could also be a sign of investor skepticism about Powell's reassurance.

"The reality is that the market is not believing what the chairman is saying... the market either doesn't believe what he's saying or it thinks that inflation could be a bigger problem," Leary said. The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up less than a basis point at 0.127%. The yield on the 30-year Treasury Inflation Protected Securities reached higher into positive territory at 0.115%, nearly twice its level at the start of trading on Wednesday. The 10-year TIPS yield rose to -0.785% and the breakeven inflation rate was at 2.195%.