TREASURIES-Longer-dated yields highest since mid-2025 on inflation fears

* Producer prices post biggest gain since early 2022, fueling inflation concerns

* BCA Research's Ryan Swift says data unlikely to prompt Fed rate hikes

* Treasury sees ok demand for $25 billion in 30-year bonds (Updates prices and adds Fed speakers)

By Karen Brettell

NEW YORK, May 13 (Reuters) - Longer-dated yields reached the highest levels since mid-2025 on Wednesday after producer prices rose more than economists had expected in April, and some Federal Reserve policymakers warned about potential interest rate hikes if price pressures continue to worsen. U.S. producer prices posted their biggest gain since early 2022, following Tuesday's consumer price data that showed annual inflation rose at its fastest pace in three years. Traders are focused on the risk inflation will continue to rise as a result of prolonged energy disruptions in the Middle East. More than a month after a tenuous ceasefire took effect, the U.S. and Iran remain far apart on the terms needed to end the war.

Ryan Swift, chief U.S. bond strategist at BCA Research, says the data so far is unlikely to shift Fed policy towards rate hikes.

Swift framed the inflation outlook around three sequential stages. The first - direct effects of energy prices on headline CPI and PPI - is already playing out. This has yet to translate into indirect pass-throughs, where business costs are passed on to consumers and seen in core inflation, though other data suggests that "it's only a matter of time" before this shows up more broadly.

For the Fed, however, the critical trigger would be second-round effects. "If we start to see higher wage growth and rising inflation expectations, then you would definitely need to hike rates," Swift said. For now, neither condition is met - earnings are "coming down pretty quickly" and inflation expectations remain "fairly well contained."

The 2-year note yield, which typically moves in step with Fed interest rate expectations, fell 1.1 basis points to 3.985%. It earlier reached 4.017%, the highest since March 27.

The yield on benchmark U.S. 10-year notes was last up 0.2 basis points at 4.473%. It earlier reached 4.50%, the highest since June 11.

TRADERS PRICE IN HIGHER RATE HIKE POSSIBILITY

Higher inflation and stronger labor market data have led some traders to price in the prospect of a potential rate hike in the first half of next year even as many economists and analysts continue to see a rate cut as the likely next move by the U.S. central bank.

Some Fed policymakers on Wednesday also warned about possible rate increases.

Boston Fed President Susan Collins said the U.S. central bank may need to raise interest rates if inflation pressures do not abate.

Minneapolis Fed President Neel Kashkari said that the U.S. labor market looks "a bit better" than it did earlier this year, while the Iran war has worsened inflation that already was running too high, views that underscore his preference for leaving the Fed's door open to possible rate hikes.

The U.S. Senate on Wednesday, meanwhile, approved Kevin Warsh as Fed chair.

Traders will focus on whether Warsh adopts a less dovish tone on future interest rate cuts as a result of the recent inflation increases.

"I'd be pretty surprised if he starts arguing in favor of rate cuts anytime soon," said Swift, adding that "it's really hard to build an economic case for that argument."

Separately, traders are monitoring a summit in Beijing on Wednesday between President Donald Trump and China's President Xi Jinping.

Trump and an entourage that included Nvidia's (NVDA) Jensen Huang and Elon Musk were greeted with a lavish welcome as he prepared to ask Xi to "open up" to U.S. business. The Treasury saw okay demand for a $25 billion sale of 30-year bonds on Wednesday, the final sale of $125 billion in coupon-bearing supply this week. The bonds sold at a high yield of 5.046%, half a basis point above where they traded before the auction. Demand was 2.30 times the amount of debt on offer, the weakest since November. The U.S. government's $58 billion auction of three-year notes on Monday was met with limited demand and a $42 billion auction of 10-year notes on Tuesday saw average interest. (Reporting by Karen Brettell; editing by Barbara Lewis and Nick Zieminski)