US yields advance as Fed's Powell in no rush to ease; 10-year drops from four-month high
US producer prices rise in October
US jobless claims fall in latest week
Powell says Fed able to lower rates over time
US yield curve flattens after Powell's remarks
Recasts, adds new comment, Fed's Powell's remarks, graphic, byline, bullets, updates prices
By Gertrude Chavez-Dreyfuss and Alden Bentley
NEW YORK, Nov 14 (Reuters) -U.S. Treasury yields across most maturities rose on Thursday after Federal Reserve Chair Jerome Powell said the central bank does not need to rush cutting interest rates amid a stable labor market and stickier inflation.
U.S. short-dated yields extended their rise, while those on the long end pared losses after his comments.
Powell, in remarks at a Dallas Fed event, said he and his fellow policymakers still consider inflation to be "on a sustainable path to 2%" that will allow the U.S. central bank to move monetary policy "over time to a more neutral setting."
The yield curve bear flattened after his remarks, with the gap between two-year and 10-year yields falling to 9.4 basis points US2US10=TWEB, compared with 16.3 bps late on Wednesday.
A bear flattener, a scenario in which short term interest rates are rising faster than those on longer-dated ones, reflects expectations the Fed could take its time cutting rates. That pushes yields on the front end higher.
"He's (Powell) a little less dovish than maybe Wall Street was expecting," said Paul Nolte, senior wealth adviser, market strategist at Murphy & Sylvest in Elmhurst, Illinois.
"But it's hard to be super dovish with the reports we've gotten in the last two days: consumer prices, producer prices and the weekly jobless claims. All of that points to still-decent job growth and sticky inflation, above the 2% target."
In afternoon trading, the benchmark 10-year yield US10YT=RR slipped 1.2 bps to 4.439%, after reaching 4.483% overnight, its highest since early July.
The U.S. 30-year bond yield US30YT=RR fell 4.1 bps to 4.594%.
On the short end of the curve, U.S. two-year yields US2YT=RR, which typically reflect interest rate expectations, rose 5.9 bps to 4.343%.
U.S. rate futures have reduced the odds of a 25-bp rate cut at next month's policy meeting to 63.2% after Powell spoke, and a 37% probability that the Fed will pause easing, according to LSEG calculations. That probability was at 75% before the Fed chief's remarks and 85% late on Wednesday.
For 2025, futures have implied 47 bps in rate reductions, compared with 52 bps the previous session.
Earlier in the session, Treasury yields ticked higher after data showed a solid labor market and a bit more pipeline inflation, before falling back again.
The market was mostly subdued during the day, with yields falling in early trade after the benchmark 10-year Treasury rose to a four-plus month high overnight on worries about the budget and inflation ramifications of incoming President Donald Trump's proposed policies on tariffs, immigration and tax cuts.
Yields rose after the Labor Department said its producer price index for final demand rose 0.2% last month after an upwardly revised 0.1% gain in September. Economists polled by Reuters had forecast the PPI climbed 0.2% following a previously reported unchanged reading in September.
In the 12 months through October, the PPI increased 2.4% after advancing 1.9% in September, all further evidence that progress toward lower inflation was stalling.
Thursday's data also showed the number of Americans filing new applications for unemployment benefits fell 4,000 last week to a seasonally adjusted 217,000, suggesting the labor market continued to chug along and that the abrupt slowdown in job growth in October that had raised hopes for continued Fed rate reductions was an aberration.
Inflation gauges https://reut.rs/4fsPID0
Reporting by Gertrude Chavez-Dreyfuss and Alden Bentley; Additional reporting by Caroline Valetkevitch; Editing by Shri Navaratnam, Susan Fenton and Jonathan Oatis
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