Treasury 10-year notes slide for longest this year as inflation bets rise

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NEW YORK, April 9 (Bloomberg): Treasury notes fell for a third week, the longest slump for benchmark 10-year securities this year, as traders bet inflation will accelerate, oil reached $113 a barrel and gold climbed to a record. An inflation gauge used by the Federal Reserve reached the highest level in a month as minutes of the central bank's last meeting showed policy makers differed over whether to begin removing record stimulus. Data next week is forecast to show the consumer price index rose in March. The Treasury will sell $66 billion of notes and bonds next week. "The Fed's acknowledging increasing inflation expectations," said Priya Misra, head of US rates strategy at Bank of America Merrill Lynch in New York, one of the 20 primary dealers that trade with the central bank. "That's putting more pressure on yields. Momentum is going to be for higher rates." The 10-year yield rose 14 basis points, or 0.14 percentage point, to 3.58 per cent, from 3.44 per cent on April 1. It touched 3.61 per cent, the highest level since Feb 18. The 3.625 per cent note due in February 2021 fell 1 18, or $11.25 per $1,000 face amount, to 100 38. Two-year note yields increased one basis point to 0.81 per cent in their third weekly rise, the longest stretch since November. Thirty-year bond yields climbed 16 basis points, the most since the week ended Feb 4, to 4.64 per cent. They touched 4.67 per cent yesterday, the highest level since March 9. Treasuries also slid as the US prepared to auction $32 billion of 3-year notes, $21 billion of 10-year debt and $13 billion of 30-year bonds in three daily sales starting April 12. A bond-market measure of inflation expectations that the Fed uses to help determine monetary policy, the five-year forward inflation rate, increased to 3.01 percentage points, the most since March 8. The measure has averaged 2.78 per cent over the past five years. "Anticipation of inflation data and Treasury supply next week are sending Treasury yields even higher," said Tom di Galoma, head of US rates trading at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. The likelihood the Fed will boost interest rates this year is 36 per cent, and the chance of one in the first quarter of 2012 is 70 per cent, Federal funds futures contracts showed. The central bank has held the benchmark rate at zero to 0.25 per cent since December 2008 to support the economy.