TREASURIES-US yields rise as oil pops after new Russia sanctions; inflation data looms

Sanctions on Russian oil firms raise global oil prices by 5% US CPI report to be released Friday despite government shutdown US auction of five-year TIPS draws soft demand By Chuck Mikolajczak and Gertrude Chavez-Dreyfuss NEW YORK, Oct 23 (Reuters) - U.S. Treasury yields rose on Thursday, with those on the long end advancing after falling three straight sessions, boosted by a surge in crude oil prices after President Donald Trump slapped Russia’s two biggest oil companies with sanctions. The sanctions targeting Rosneft and Lukoil sparked a jump in global oil prices of about 5% and marked a policy shift by Trump as he tries to end the war in Ukraine, while India weighed cutting Russian imports. When oil prices rise, market participants anticipate higher inflation in the short to medium term. Investors in Treasuries, who earn a fixed nominal return, demand higher yields to compensate for the expected erosion of their inflation-adjusted returns. Investors are also looking to Friday’s U.S. Consumer Price Index (CPI) for September, with a 0.4% increase for the headline number, and a 0.3% core figure month-on-month. The U.S. Bureau of Labor Statistics said last week it would publish the CPI report despite the government shutdown – now on its 23rd day – to assist the Social Security Administration with its annual cost-of-living adjustment for 2026 for millions of retirees and other benefits recipients. Analysts said Friday’s inflation outcome is not expected to deter the Federal Reserve from cutting interest rates by 25 basis points (bps) for a second straight meeting later this month. “The Fed is clearly now focused on jobs … and jobs are becoming even more important than the inflation numbers, so they’re on the right path,” said Jeremy Schwarz, chief investment officer, at WisdomTree. “They’re starting to bring down rates. They’re slower than we would like, but they’re not so far away from neutral.” Schwarz believes that the fed funds rate should be 75-100 basis points lower than where they currently are, which is in the 4.0%-4.25% target range. In afternoon trading, the yield on the benchmark U.S. 10-year Treasury note (US10YT=TWEB) rose 4.4 basis points (bps) to 3.995% after hitting a session high of just above 4%. U.S. 30-year yields climbed 3.4 bps to 4.573% (US30YT=TWEB) . On the shorter-end of the curve, U.S. two-year yields, which reflect interest rate expectations, were up 3.8 bps at 3.482% (US2YT=TWEB) . LUKEWARM APPETITE FOR TIPS Also on Thursday, the Treasury auctioned $26 billion in new U.S. five-year Treasury Inflation-Protected Securities to tepid demand. The auction cleared at a high yield of 1.182% , above expectations at the bid deadline, indicating that investors demanded a premium to absorb the note. Indirect bidders were awarded 62.1%, less than the 74.6% previously, and the 64.2% from the last auction in April. Dealers had to take 13.5% of supply, double the prior 6.6%, and above the 9.1% average. This suggested weak appetite for the TIPS note that primary dealers had to step in to take down the rest of the offering. Analysts said the size of the auction was a factor as to why demand was weak. At $26 billion, it’s the largest TIPS auction on record. Also, Friday’s CPI release posed a risk for bidders as they don’t want to load up on the inflation-linked debt ahead of the data. Post-auction, U.S. five-year TIPS (US5YTIP=TWEB) were last up 3.7 bps at 1.229%. In other parts of the bond market, the yield curve was little changed from Friday, with the spread between U.S. two-year and 10-year yields at 50.7 bps (US2US10=TWEB) , from 50.4 bps late on Wednesday.