Inflation bets send yields up to new milestone

Traders anticipating rising inflation accelerated a bond sell-off and sent US Treasury yields to new milestone highs on Thursday.

The 10-year yield was up 6.9 basis points at 1.4578% and reached as high as 1.468%, the highest in a year.

The trading 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 went as wide as 132 basis points, the most since late 2016, and was last at 129 basis points, 5 more than Wednesday's close.

Analysts said the trading showed investors positioning for price increases on goods and services internationally, even after top US Federal Reserve and European Central Bank officials tried to talk down rising yields.

"It's starting to become a momentum trade and the sell-off is becoming a global phenomenon," said Subadra Rajappa, head of US rates strategy at Societe Generale.

US weekly jobless claims fell more than expected, further fueling risk-on sentiment.

Investors will watch to see the results of an auction of $62 billion of seven-year notes, with results due in the early afternoon.

The US secured overnight financing Rate (SOFR), which measures the cost of borrowing cash overnight using Treasury securities as collateral, was at 0.02% on Thursday after dropping to 0.01% on Wednesday, the lowest since May 2020. SOFR has replaced the London interbank offered rate (LIBOR) as an interest rate benchmark for banks.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 2.5 basis points at 0.1524%.

The yield on 30-year Treasury Inflation Protected Securities was at 0.155% after reaching as high as 0.214%, the highest in a year. The 10-year TIPS yield was at -0.721% and the breakeven inflation rate was at 2.176%.