TREASURIES-Traders pause sell-off, study Fed intentions

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(Updates with market activity, analyst comment) By Dhara Ranasinghe and Ross Kerber NEW YORK / LONDON, Nov 12 (Reuters) – Selling in U.S. Treasury markets paused on Friday after five-year yields climbed to their highest since early 2020, as traders tried to gauge the pace of future central bank rate increases. U.S. bond markets were closed on Thursday and trading Friday initially picked up where it left off on Wednesday after economic data showed the biggest annual rise in U.S. inflation in 31 years. Early in the day five-year Treasury yields rose to as much as 1.263%, the highest since February 2020 and up five basis points on the day. But those yields and others then fell back as investors looked for new clues as to how quickly the U.S. Federal Reserve might start to hike interest rates, said Priya Misra, head of global rates strategy for TD Securities. “The market is taking a breather,” she said. Traders have worried that rising inflation could prompt the Fed to raise interest rates sooner rather than later. “It’s all about the June Fed meeting in my mind, which is almost priced in as a hike,” said Peter Chatwell, head of multi-asset strategy at Mizuho in London. “We’re at the inflection point whereby any further hawkish repricing of dollar rates markets is likely to weigh much more heavily on risk assets than it has in the past.” The five-year note was last up a basis point at 1.2227%. Longer-dated Treasury yields were flat or slightly lower on the day, with the benchmark 10-year note down less than a basis point at 1.5511%. The 10-year breakeven rate held near 2.71%, the highest since May 2006. Attention was expected to turn later in the morning to the University of Michigan’s preliminary consumer sentiment index for November, as well as the JOLTS job openings for September. November 12 Friday 9:14 AM New York / 1414 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0525 0.0532 0.002 Six-month bills 0.065 0.0659 0.000 Two-year note 99-187/256 0.5135 0.010 Three-year note 99-184/256 0.8451 0.010 Five-year note 99-136/256 1.2227 0.010 Seven-year note 99-128/256 1.4508 0.004 10-year note 98-96/256 1.5511 -0.007 20-year bond 96-180/256 1.9519 -0.010 30-year bond 99-16/256 1.9162 -0.002 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 23.50 1.75 spread U.S. 3-year dollar swap 19.00 1.25 spread U.S. 5-year dollar swap 8.50 0.25 spread U.S. 10-year dollar swap 4.25 1.25 spread U.S. 30-year dollar swap -17.50 1.25 spread (Reporting by Dhara Ranasinghe Editing by Mark Potter)