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(Updates prices to late afternoon) * LSEG data shows markets price a 63% chance Fed keeps rates steady next month * US 10-year yield rises 4.68 basis points to 5.302%, highest since mid-June 2007 * August core PCE inflation stays at 3.0% year-on-year, BEA data shows By Sinéad Carew Sept 30 (Reuters) - Longer-dated US Treasury yields were higher on Wednesday afternoon while 2-year yields were close to flat as investors digested August's slower-than-expected inflation increase and bets decreased for a Federal Reserve interest rate hike in October. Before turning higher, yields on 2-year and 10-year Treasuries had initially extended declines after the Commerce Department's Bureau of Economic Analysis said the Personal Consumption Expenditures Price Index rose 0.3% last month after a downwardly revised 0.1% gain in July. The data, issued early on Wednesday, showed that Core PCE inflation increased 3.0% year-on-year in August after a downwardly revised 3.0% advance in July from initial estimates for a 3.3% increase in the 12 months through July. For September, bond yields have advanced at their fastest monthly pace in years as the ongoing Middle East war has kept oil prices elevated and raised questions about when stubbornly high inflation will ease. The market was last pricing in a roughly 63% chance that the Fed will keep rates steady next month compared with a 55% chance before the PCE release, according to the latest data from LSEG. "Core PCE came in lower than the consensus expectation but the market already knew that the changes in how the number was calculated were going to impact the number," said Luis Alvarado, co-head of global fixed income strategy at Wells Fargo Investment Institute. "The actual inflation experience and the pain in affordability that consumers and businesses are feeling is still alive and well. This one data point does not change the trend that we have been experiencing. The Fed is still behind the curve and needs to act further to rein in inflation." The yield on benchmark US 10-year notes rose 4.68 basis points to 5.302%, reaching its highest level since mid-June 2007. The 30-year bond yield rose 5.42 basis points to 5.6482%, after trading at 5.6505%, its highest level since June 2002. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 0.21 basis points to 4.891% after falling earlier to 4.8267%. A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 40.7 basis points after touching its steepest level since September 10. But since the end of August, the spread has narrowed by nearly 5 basis points. On the last trading day of the month yields on 2-year Treasuries were showing an advance of about 53 basis points, which would be their biggest monthly advance since February 2023. Benchmark 10-year yields were also up 53 basis points for their biggest monthly climb since September 2022. Yields on 30-year bonds have risen about 39 basis points this month for their largest increase since December 2024. On Tuesday, expectations for an October hike were lowered and short-dated yields fell after comments from New York Fed President John Williams suggested less urgency for more tightening. After Wednesday's data, investors will closely watch public comments from central bank officials as well as upcoming data releases such as September's crucial nonfarm payrolls report, which is due out on Friday. Upcoming Fed speakers will include Federal Reserve Bank of Minneapolis President Neel Kashkari. "As the month continues and new data comes through this number is going to continue to jump around," Alvarado added. Elsewhere in Wednesday's economic releases, the latest private payrolls data from ADP showed that US employment increased by 90,000 jobs in September compared with consensus expectations for 70,000. And the US trade deficit in goods widened sharply in August amid a surge in imports, suggesting that trade could remain a drag on economic growth in the third quarter. (Reporting by Sinead Carew, Editing by Nick Zieminski and Andrea Ricci ) Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates. Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
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