TREASURIES-U.S. yields rise as oil surge stokes inflation nerves

SINGAPORE, April 3 (Reuters) - U.S. Treasury yields ticked higher in Asia hours on Monday, as investors faced renewed concerns about inflation on surging oil prices after surprise production cuts announced by OPEC+. Saudi Arabia and other OPEC+ oil producers on Sunday announced a further reduction in output of around 1.16 million barrels per day, with Brent crude futures jumping 5% on the news. Two-year U.S. treasury yields rose about five basis points (bps) to 4.1082% on the expectation that higher oil prices make it harder to see inflation falling and therefore less likely that the Federal Reserve cuts back rates. Ten-year yields rose about 3 bps to 3.5204%. Yields rise when bond prices fall. The moves took some of the gloss from a bond market rally on Friday, after the Fed's preferred gauge of inflation, the core PCE price index, came in softer than expected for February at 0.3%. "The durability of declining headline inflation must now be seriously questioned if oil producing countries are determined to ensure that oil prices have already bottomed," Rabobank strategist Benjamin Picton said in a note. Fed funds futures also fell, as investors drove up interest rate expectations, with pricing implying a roughly 60% chance of a 25 bps Fed hike next month, compared with a week ago when pricing implied only about a 40% chance of a hike. The size of cuts expected later in the year has also been pared back. Bonds in Japan, an energy importer, also came under pressure. Ten year Japanese government bond yields rose 3.5 bps to 0.355%, and ten-year Korean yields rose about 4 bps to 3.374%. (Reporting by Tom Westbrook; Editing by Varun H K)