TREASURIES-Yields slip after unemployment data surprises to the upside

By Matt Tracy

May 21 (Reuters) - U.S. Treasury yields retraced a portion of their Thursday morning gains after the release of stronger-than-expected economic data, as investors weigh the Iran war's impact on inflation and the U.S. economy.

The yield on the benchmark 10-year Treasury note was last up 2.6 basis points on the day at 4.611%. It reached its highest level since January 2025 on Tuesday, surging to 4.687%.

The 30-year Treasury bond's yield, which is seen as a barometer of geopolitical and fiscal risk, was last up 1.7 bps at 5.139%. It briefly touched 5.197% on Tuesday, its highest since July 2007 before the global financial crisis.

Yields fell on Wednesday after President Donald Trump said that peace talks with Iran were in their final stages, following a selloff in U.S. and global bond markets earlier this and last week.

Yields rose again in early Thursday trading alongside oil prices, as Brent crude oil prices bounced back from their Wednesday decline following Trump's comments. But they reversed course after data showed U.S. weekly jobless claims fell in the week ended May 16.

The 2-year Treasury note yield, which typically moves in step with interest rate expectations for the Federal Reserve, was last up 4.2 bps at 4.1%.

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 an indicator of economic expectations, was last at 50.9 bps.

Investors are now pricing in a 56.3% chance the Fed could raise rates in December, and a 94.2% chance it maintains current rates at its next meeting in June, according to the CME FedWatch tool.

"We're thinking that rates remain elevated for the remainder of the year and that the curve stays around the same level for the rest of the year," said Molly Brooks, U.S. rates strategist at TD Securities.

The Treasury Department is slated on Thursday to auction $19 billion in Treasury Inflation Protected Securities (TIPS) due January 2036. (Reporting by Matt Tracy, Editing by Nick Zieminski)