SINGAPORE, March 12 (Reuters) - U.S. Treasuries came under selling pressure on Thursday, as a renewed climb in oil prices towards $100 a barrel prompted investors to pare bets on further Federal Reserve rate cuts due to worries about a resurgence in inflation.
The two-year Treasury yield (US2YT=RR) , which typically reflects near-term rate expectations, rose 2.7 basis points to 3.6631% in Asia, having jumped to a 6-1⁄2-month high of 3.6900% earlier in the session.
The benchmark 10-year yield (US10YT=RR) was up 2.4 bps to 4.2296%. Bond yields move inversely to prices.
The selloff in Treasuries gathered pace as war in the Middle East showed no signs of easing and Iran struck tankers in Iraqi waters and other ships near the vital Strait of Hormuz, threatening to paralyse global energy trade.
As oil prices surged more than 6% on Thursday, traders in turn scaled back bets on Fed cuts this year.
Markets are now pricing in less than 30 bps worth of easing by December, as compared to more than 50 bps prior to the start of the U.S.-Israel war on Iran. (0#USDIRPR)
“The rise in the oil price is likely to result in stronger core and headline CPI in coming months, with the near-term impact concentrated on the pass-through from gasoline prices,” said David Doyle, head of economics at Macquarie Group.
“Should oil prices remain in their recent range, there will also be further knock-on impacts on food inflation and core inflation.”
The Fed meets next week and is expected to stand pat on rates, though focus will be on what policymakers say about the inflation and growth outlook for the world’s largest economy.
“The potentially market-moving information will be embedded in the updated Summary of Economic Projections (SEP),” said Jeffrey Roach, chief economist for LPL Financial.
“It’s likely that the SEP will give a stagflationary signal as policymakers will likely revise up inflation forecasts and revise down the growth outlook.”
Data on Wednesday showed U.S. consumer prices rose moderately in February as rents maintained a steady pace of increases, though households paid more for gasoline and at the supermarket.

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Reuters

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