TREASURIES-Yields jump as consumer spending beats expectations

(Adds data, background, updates prices) By Karen Brettell NEW YORK, Feb 24 (Reuters) - U.S. Treasury yields jumped on Friday, with two-year yields hitting three-and-a-half-month highs, after data showed that U.S. consumer spending rebounded sharply in January amid strong income growth, while inflation accelerated. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 1.8% last month. Economists polled by Reuters had forecast consumer spending rebounding 1.3%. The personal consumption expenditures (PCE) price index also shot up 0.6% last month, after gaining 0.2% in December. In the 12 months through January, the PCE index was up 5.4%. "This is increasing pressure on the Fed to keep going. They clearly have some work to do to slow the economy down and bring inflation back to 2%," said Priya Misra, head of global rates strategy at TD Securities in New York. Other data showed that investor expectations for inflation for the coming five years were unchanged in February at 2.9%.

Two-year yields , which are highly sensitive to Federal Reserve policy, rose as high as 4.826%, the highest since Nov. 4. Benchmark 10-year yields increased to 3.967%. They are holding just below the 3.978% level reached on Thursday, which was the highest since Nov. 10. The benchmark 10-year yields have risen from a four-month low of 3.321% on Jan. 19 as strong data and hawkish comments from Fed officials increase expectations that the U.S. central bank will hike rates higher than previously anticipated, and hold them in restrictive territory for longer. Fed funds futures traders are pricing for the Fed’s benchmark rate to peak at 5.39% in July, up from 4.58% now. The inversion in the yield curve between two-year and 10-year notes deepened and was last at minus 85 basis points, reflecting concerns about an imminent recession.

February 24 Friday 10:19AM New York / 1519 GMT Price Current Net Yield % Change (bps) Three-month bills 4.7175 4.8382 0.006 Six-month bills 4.9175 5.11 0.019 Two-year note 99-172/256 4.799 0.106 Three-year note 98-144/256 4.5227 0.116 Five-year note 99-16/256 4.2099 0.105 Seven-year note 99-76/256 4.1166 0.089 10-year note 96-84/256 3.9491 0.068 20-year bond 96-224/256 4.1058 0.062 30-year bond 94-192/256 3.9244 0.046
DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)
U.S. 2-year dollar swap 32.25 -1.00
spread
U.S. 3-year dollar swap 19.00 0.25
spread
U.S. 5-year dollar swap 6.75 -0.75
spread
U.S. 10-year dollar swap -0.75 -0.25
spread
U.S. 30-year dollar swap -40.25 -0.50
spread

(Reporting by Karen Brettell; Additional reporting by Herb Lash in New York; Editing by Kirsten Donovan and Andrea Ricci)