TREASURIES-US 10-year yield hits highest since November 2023

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US two-year yield hits highest since July 2024

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US 2/10 yield curve steepens, hits widest gap since May 2022

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US rate futures price in just 27 bps of cuts in 2025

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Market now looks to US inflation, retail sales data

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 13 (Reuters) - U.S. Treasury 10-year yields surged to 14-month highs on Monday in choppy trading before pulling back, boosted by a combination of a strong labor market and persistent inflation that should cause the Federal Reserve to pause its easing cycle, as well as uncertainty over the policies of the incoming Donald Trump administration.

Investors also covered short positions earlier in the session that pushed prices higher yields slightly lower, though that proved short-lived.

In mid-morning trading, the benchmark 10-year yield rose to 4.799%, the highest since November 2023 and was last up 1.4 basis points (bps) at 4.788%.

On the short-end of the curve, the two-year yield, which is sensitive to U.S. rate outlook expectations, was little changed at 4.396%. Earlier in the session, it climbed to 4.426%, the strongest level since July.

"I have been bearish on the 10-year for a while because of uncertainty due to Trump's policies. People are saying that they are not willing to take the risk on Treasuries," said Stan Shipley, managing director and fixed income strategist at Evercore ISI in New York.

"We'll find out more in a week or ten days or so, as we see executive orders come out of the White House. But right now, growth is strong, it looks like inflation may be turning up a little bit here, and you tack on uncertainty to that and that's not a good sign for Treasuries."

President-elect Donald Trump's inauguration will be on January 20 and market participants said investors will continue to sell Treasuries and further lift their yield until there's clarity on his policies on tariffs, tax cuts, and immigration.

The U.S. yield curve, meanwhile, steepened on Monday, with the spread between two- and 10-year yields touching 47.67 bps , the widest gap since May 2022. It was last at 38.8 bps.

This means that yields on the 10-year are higher than those on the two-year, which is the normal slope of the curve and suggests that investors are typically compensated with a higher yield for taking risk over a longer period.

The yield curve was at 37.8 bps last Friday, following a jobs report that came way higher than expectations. Data showed that the U.S. economy added 256,000 jobs in December, compared with economists' forecasts for an increase of 160,000.

The U.S. rate futures market on Monday has priced in just 27-bps of easing this year, or one rate cut, most likely either in September or October, according to LSEG estimates. The rate futures market has been so choppy as well on Monday that it has indicated one rate cut to no cuts in 2025.

In other maturities, U.S. 30-year yields were flat at 4.963% .

Investors are now looking to this week's U.S. inflation and retail sales data for clues as to whether the economy will continue to show resilient growth. Goldman Sachs is expecting the headline consumer price index to have risen 0.4% in December and 2.9% for 2024, reflecting higher food and energy prices. (Reporting by Gertrude Chavez-Dreyfuss, Editing by Franklin Paul)