US Treasury yields rise to highest since October as rate angst weighs

LONDON, Aug 17 (Reuters) – US government bonds continued to sell off on Thursday, with long-dated yields rising to their highest since October on growing expectations that a resilient economy will keep interest rates higher for longer.

The yield on 10-year US Treasury Inflation-Protected Securities (TIPS), meanwhile, rose to 1.99%, its highest since 2009 in a further sign of expectations policy will remain tight.

Wednesday’s release of the Federal Reserve’s July meeting minutes showed rate setters were divided over the need for more rate hikes, adding to the selling in bond markets.

In London trade, benchmark 10-year Treasury yields last stood at around 4.29%, having touched 4.31% earlier – their highest level since October.

“If you think about the scale of rate cuts that had been priced in, the longer the data holds up, the longer the markets become anxious about what has been priced and has to adjust,” said Derek Halpenny, head of research, global markets EMEA, MUFG.

Renewed bond selling puts Treasury yields back within sight of reaching their highest levels since 2007.

Analysts at ING said it was possible for 10-year yields to rise to 4.5%.

Yields on 30-year Treasuries also touched their highest since October, at around 4.4%, while two-year bond yields were flat at around 4.97%.

Markets are pricing in a roughly 86% chance of the Fed standing pat next month, with a 36% chance a quarter point rate increase at the November meeting.

(Reporting by Dhara Ranasinghe; Editing by Andrew Cawthorne)