TREASURIES-Yields notch fresh highs as inflation threat lingers

SINGAPORE, March 2 (Reuters) - U.S. Treasury yields hit fresh highs in Asia trade on Thursday, as a series of nasty inflation surprises around the world spooked investors and stoked worry about interest rate hikes. The two-year Treasury yield , which typically moves in step with near-term U.S. rate expectations, rose nearly four basis points to a more than 15-year high of 4.9244%. The benchmark 10-year yield peaked at 4.02%, its highest since November, after having broken the psychological 4% level in the previous session, as traders ramped up their bets on rates rising further and staying there longer than hoped. While the Institute for Supply Management survey out on Wednesday showed a contraction in U.S. manufacturing for a fourth straight month in February, the data also pointed to an increase in prices for raw materials - a negative signal for inflation. "The expansionary reading on prices paid demonstrates the downdraft from goods prices on consumer price inflation will not be everlasting," said economists at Wells Fargo. Five year yields hit a nearly four-month high of 4.3053%. U.S. Treasuries were also hit by the spillover effect from Europe, where surprisingly strong German inflation data followed similarly hot readings in Spain and France. Euro zone inflation data is due later on Thursday. Germany's 2-year government bond yield rose to its highest level since October 2008. "More persistent inflationary pressures in the U.S. and Europe, which could be exacerbated by China's post-reopening recovery ... could make the challenge of taming inflation," said analysts at Goldman Sachs.
(Reporting by Rae Wee Editing by Shri Navaratnam)