Feb 8 (Reuters) - U.S. Treasury yields rose on Thursday as traders waited on key inflation data that may give further clues on when the Federal Reserve is likely to begin cutting interest rates.
Yields briefly pared gains, however, after the U.S. Treasury Department saw strong demand for a $25 billion sale of 30-year bonds.
Traders are waiting for the consumer price index (CPI) for January on Tuesday, after data last week showed that jobs gains were much higher than expected last month while wages increased by the most in nearly two years.
Ahead of that, the government on Friday will release CPI revisions for the past calendar year. These recalculated seasonal adjustments last year surprised traders by showing that price pressures were greater in late 2022 than previously thought.
"A year ago we had the revisions cause a little bit of a stir right ahead of the inflation data," said Ellis Phifer, managing director of fixed income research at Raymond James in Memphis, Tennessee.
"The market is still a little bit concerned about inflation data coming out next week, given a lot of the stronger employment data that’s hit the tape of late," Phifer noted.
Fed officials, including Chairman Jerome Powell, this week have said they want to see more evidence that inflation will continue to decline before cutting rates.
Richmond Fed President Thomas Barkin said on Thursday that recent stronger-than-expected data on the U.S. economy may be partly due to the difficulty of making accurate seasonal adjustments around the beginning of a new year.
“The Fed continues to basically have a uniform message that it will be cutting rates, it doesn’t have to be immediate and that they would like to see a continuation of the favorable inflation data that they’ve seen recently,” said Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston.
Benchmark 10-year notes gained 7 basis points on the day to 4.170%. They were holding below an 11-day high of 4.177% reached on Monday.
Two-year yields rose 3 basis points to 4.456%. They are down from a one-month high of 4.483% on Monday.
The inversion in the yield curve between two-year and 10-year notes narrowed to minus 28 basis points. It reached minus 42 basis points on Friday, which was the most inverted since Jan. 5.
Longer-dated yields briefly dipped, however, after the Treasury saw strong demand for its 30-year auction, the final sale of $121 billion in new coupon-bearing supply this week.
The bonds sold at a high yield of 4.360%, two basis points below where they had traded before the auction. The bid-to-cover ratio was 2.40 times, the highest since December.
Thirty-year yields were last at 4.375%, after earlier reaching a two-week high of 4.383%.
The Treasury also saw solid interest in a record $42 billion sale of 10-year notes on Wednesday, and a $54 billion auction of three-year notes on Tuesday.
(Reporting By Karen Brettell; editing by Jonathan Oatis)
