TREASURIES-Yields hit six-week high ahead of inflation data on Tuesday

By Matt Tracy WASHINGTON, Feb 13 (Reuters) - Benchmark 10-year U.S. Treasury yields hit a six-week high on Monday as markets prepared for the latest inflation data and potentially tighter monetary policy from the U.S. Federal Reserve. Benchmark 10-year yields rose as high as 3.755% on Monday, the highest since Jan. 6. Meanwhile, two-year yields reached 4.560%, their highest since late November. Yields have steadily risen since the release of stronger than expected jobs data at the beginning of the month, which showed employers added 517,000 jobs in January. The unemployment rate hit 3.4%, its lowest reading in 53 years. This led many investors to recalibrate the odds that the Fed will raise its federal funds rate beyond the peak of between 5.00% and 5.25% widely forecast prior to the jobs data. "The data has been very volatile and whipsawed a lot of people," said John Madziyire, senior portfolio manager and head of Treasuries and Inflation in Vanguard's Fixed Income Group. "There's this dynamic where technical (investors) are going to want to buy these markets, and fundamental (investors) are clearly saying we're going to be selling off much further, at least until we get more data," he added. Addressing the jobs data last week, Fed Chair Jerome Powell left the door open for raising the fed funds rate beyond 5.00%-5.25%. HEADLINE PRICES

Meanwhile, New York Federal Reserve President John Williams noted the Fed has more work to do on rates, but that a peak rate of 5.25% still seemed "reasonable". The markets now await the release of the latest consumer price index data on Tuesday. Economists polled by Reuters expect the CPI print to show both headline prices and the core CPI to gain 0.4% month-over-month for January. Following the CPI report, on Wednesday the U.S. Census Bureau will release its January retail sales report, another datapoint closely watched by the Fed and markets. This is expected to show retail sales rebounding 1.6% in January after falling 1.1% in December, according to a Reuters survey of economists. Yields continued to rise on Friday after the University of Michigan's preliminary report showed U.S. consumer sentiment improved to a 13-month high in February, but that expectations of higher inflation continue to persist. Breakeven rates on five-year Treasury Inflation-Protected Securities , a key sign that investors anticipate higher inflation, reached 2.50% on Friday, or 2.50% per annum
for five years. This is up from 2.33% before the latest jobs data on Feb. 2. The yield curve between two-year and 10-year notes inverted minus 83 basis points, after inverting as far as minus 88 basis points last week, the most since Dec. 13. The deep inversion on this part of the yield curve indicates concerns about an imminent recession. In addition to domestic datapoints such as the CPI and jobs figures, yields have also risen on increased concerns about inflation after Russian Deputy Prime Minister Alexander Novak said Russia will cut oil production by 500,000 barrels per day. Feb. 13, Monday at 9:41 a.m. New York / 1441 GMT Price Current Net Yield % Change (bps) Three-month bills 4.65 4.7675 -0.005 Six-month bills 4.755 4.9364 0.007 Two-year note 99-55/256 4.5471 0.034 Three-year note 99-96/256 4.224 0.025 Five-year note 98-20/256 3.9299 0.006 Seven-year note 97-232/256 3.8455 -0.010 10-year note 98-36/256 3.7244 -0.019 20-year bond 100-248/256 3.9287 -0.029 30-year bond 97-24/256 3.7879 -0.038
DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)
U.S. 2-year dollar swap 28.75 -1.00
spread
U.S. 3-year dollar swap 17.50 0.25
spread
U.S. 5-year dollar swap 5.00 0.75
spread
U.S. 10-year dollar swap -2.00 0.25
spread
U.S. 30-year dollar swap -39.00 0.00
spread

(Reporting by Matt Tracy; Editing by David Holmes)