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NEW YORK — Treasury yields edged

higher on Monday as a relatively strong U.S. economy and labor

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market suggested the Federal Reserve will stay the course this

week and aggressively raise interest rates again to tame

inflation.

The yield on two-year notes, which typically

moves in step with rate expectations, was up 7.5 basis points at

4.497% while the 10-year yield rose 3.6 basis

pointsto 4.046%.

The Fed needs to slow demand for inflation to come down and

to do that they need to see employment moderate, said Anthony

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Saglimbene, chief market strategist at Ameriprise Financial in

Troy, Michigan.

“What we’re going to find out this week, is that the Fed is

going to leave itself the most flexibility to make sure that

they can address inflation if these numbers continue to come in

high,” Saglimbene said, referring to inflation data.

Equity markets in particular have begun to entertain the

idea the Fed could pause its rate hikes or at least shift to a

less agressive hiking campaign.

“The bond market has continued to doubt that the Fed is

ready to either slow interest rate increases or actually move to

the sidelines,” Saglimbene added, saying markets had got ahead

of themselves.

Fed funds futures are pricing in a 97.7% likelihood that the

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Fed will raise rates by 75 basis points at the end of its

two-day policy meeting on Wednesday. The market has also raised

its outlook for the Fed’s target rate to peak at 4.95% in May

2023.

A closely watched part of the U.S. Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as a recession harbinger when the curve

inverts, was at -45.5 basis points.

The 30-year yield was up 1.8 basis points to

4.147%.

The breakeven rate on five-year U.S. Treasury

Inflation-Protected Securities (TIPS) was last at

2.661%.

The 10-year TIPS breakeven rate was last at

2.519%, indicating the market sees inflation averaging just over

2.5% a year for the next decade.

The U.S. dollar 5 years forward inflation-linked swap

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, seen by some as a better gauge of inflation

expectations due to possible distortions caused by the Fed’s

quantitative easing, was last at 2.605%.

Oct. 31 Monday 10:11 AM New York / 1411 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 4.025 4.1205 0.039

Six-month bills 4.41 4.5703 0.049

Two-year note 99-197/256 4.4969 0.075

Three-year note 99-112/256 4.4547 0.066

Five-year note 99-120/256 4.2441 0.056

Seven-year note 99-24/256 4.1505 0.045

10-year note 89-156/256 4.0457 0.036

20-year bond 86-96/256 4.4143 0.025

30-year bond 80-120/256 4.1479 0.019

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap spread 36.75 0.00

U.S. 3-year dollar swap spread 14.25 0.50

U.S. 5-year dollar swap spread 6.50 0.00

U.S. 10-year dollar swap spread 3.75 0.50

U.S. 30-year dollar swap spread -45.75 0.75

(Reporting by Herbert Lash; Editing by Kirsten Donovan)