Treasuries slip

Longer-dated US Treasuries prices fell on Monday after lower US oil production and Opec's readiness to talk with other producers heightened inflation fears, while weekend comments from the Federal Reserve vice chair hurt shorter-dated prices. Medium- and longer-dated Treasuries prices reversed earlier gains, with 30-year bonds falling the most after a downward revision of US output data and commentary in the latest Opec Bulletin publication suggesting the group may be increasingly willing to talk to other producers about curbing output.
The developments sent Brent crude oil rising over 8 percent. The rally in oil fuelled concerns of higher inflation, analysts said, which hurt longer-dated Treasuries prices since inflation erodes the value of interest rate payouts. "Treasuries become very sensitive at some point to the price of energy," said Robbert van Batenburg, director of flow strategy at Societe Generale. He said the selling pressure helped reverse gains in long-dated Treasuries prices, which occurred on investor buying to meet with expected month-end changes to portfolio benchmarks.
Benchmark 10-year yields hit 2.218 percent, their highest in a week and a half, while 30-year yields hit a session high of 2.959 percent after hitting a session low of 2.861 percent. Analysts said comments from Fed Vice Chairman Stanley Fischer on Saturday suggested the Fed could still be on track to raise interest rates this year. The comments weighed on shorter-dated Treasuries prices since those securities are considered most vulnerable to Fed rate hikes.
US inflation will likely rebound as pressure from the dollar fades, allowing the Fed to raise rates gradually, Fischer said in a speech careful not to overreact to a possible Chinese slowdown. US 30-year Treasury bonds were last down 31/32 in price to yield 2.96 percent, from a yield of 2.91 percent late Friday. Benchmark 10-year Treasuries prices were last down 8/32 with a yield of 2.21 percent, from a yield of 2.18 percent late Friday. Yields move inversely to prices. Two-year notes were last down slightly in price to yield 0.74 percent, from a yield of 0.73 percent. US 30- and 10-year Treasury yields rose slightly in August after falling in July.