Yields rise as European central banks seen as less accommodative

Benchmark US Treasury yields rose to five-week highs on Thursday in sympathy with weaker European government debt, as investors evaluated the likelihood that central banks in Europe will soon become less accommodative. European Central Bank President Mario Draghi said on Tuesday the ECB might tweak its stimulus so it does not become more accommodative as the economy recovers, though sources said on Wednesday he had not intended to signal imminent tightening.
Also on Wednesday, Bank of England Governor Mark Carney said a rise in British interest rates is likely to be needed as the economy comes closer to running at full capacity. Germany's 10-year government bond yield rose to a seven-week high, dragging Treasury yields higher with it.
"What's going on in Europe is really what's driving us here," said Brian Daingerfield, a macro strategist at NatWest Markets in Stamford, Connecticut. Benchmark 10-year notes were last down 19/32 in price to yield 2.29 percent, the highest since May 24 and up from 2.22 percent late on Wednesday.
Attention is expected to return to the US economy on Friday when personal income and consumption data will be evaluated for inflation signals. The yield curve has flattened dramatically in the past month on concerns about weakening price pressures. "Tomorrow's PCE (Personal Consumption Expenditures) deflator print is going to be an important read for markets in trying to assess how much patience the Fed can have for assessing when to make their next move on rates," said Daingerfield.
The yield curve between five-year notes and 30-year bonds steepened to 96.40 basis points on Thursday, after falling as low as 91.90 basis points on Wednesday, the flattest since late 2007. Data on Thursday showed the US economy slowed less sharply in the first quarter than initially estimated due to unexpectedly higher consumer spending and a bigger jump in exports.
The number of Americans filing for unemployment benefits edged up last week, but the underlying trend remained consistent with a tight labor market, other data showed.