TREASURIES-US yields rise as near-term recession risks fade

By Gertrude Chavez-Dreyfuss

NEW YORK, Sept 23 (Reuters) - U.S. Treasury yields advanced on Monday as bond investors continued to price out near-term recession in the world's largest economy amid data showing increased price pressures this month that could slow the pace of the Federal Reserve's easing cycle.

U.S. yields on the long end of the curve -- those from seven-year notes to 30-year bonds -- climbed to three-week highs. That further steepened the yield curve, a barometer of U.S. economic prospects, with the gap between two and 10-year yields hitting positive 17.9 basis points (bps). That's the widest since June 2022. It was last at positive 16.5 bps .

The yield curve tracked a bear steepening path, in which yields on longer-dated Treasuries are rising faster than those on shorter-term maturities, suggesting that investors are pricing in a pick-up in inflation expectations at some point in the future.

Data on Monday reinforced what the yield curve is indicating. A report showed a rise in a key component of S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors. The survey's measure of prices paid by businesses for inputs expanded to a one-year high of 59.1 from 57.8 last month. Its gauge of prices charged rose to 54.7 from 52.9 in August.

The output index, however, was little changed at 54.4 in September compared to a final reading of 54.6 in August. A reading above 50 indicates expansion in the private sector.

"After the summer doldrums, we're starting to pick up some momentum. Oil prices have stabilized here and credit spreads remain low," said Stan Shipley, managing director and fixed income strategist at Evercore ISI in New York, noting that there has been a bit of risk appetite thrown in the mix as well.

"People are saying that recession risks are not anywhere in the near term here, but more like possible long term. So people are taking some risk-on positions and moving away from Treasuries for now."

In late morning trading, the benchmark 10-year yield rose 4.7 bps to 3.777% after earlier hitting a three-week high of 3.794%.

U.S. 30-year yields increased 4.4 bps to 4.116%, also hitting a three-week peak of 4.134%.

On the front end of the curve, U.S. two-year yields were up 3.4 bps at 3.605%.

The U.S. rate futures market has priced in 51% chance of a smaller 25-bp cut at the November meeting with a 49% probability of the bigger 50-bp easing, according to LSEG calculations. For the rest of the year, the futures market is implying cuts of around 77 bps.

Fed speakers on Monday justified the U.S. central bank's big rate move last week. And there are plenty more speaking this week that should help guide the market on what the Fed would be doing at the November meeting. (Reporting by Gertrude Chavez-Dreyfuss Editing by Nick Zieminski)