SINGAPORE (Reuters) - Two-year Treasuries looked to close out their worst month in more than three years on Friday, while the longer end of the curve was poised to post its most violent flattening in a decade as traders prepare for the Fed to raise rates around mid-2022.
Two-year yields rose 1.6 basis points (bps) to 0.5069% in Asia after zooming to an almost 20-month high of 0.5670% on Thursday. They are up 22.5 bps this month, the sharpest one-month rise since January 2018.
Long-end yields, in contrast, have fallen because investors reckon surging inflation will bring on sooner but smaller rate increases.
Yields, which fall when prices rise, were steady at the long end on Friday, though a small drop in the 30-year yield to 2.005% kept it just below the 20-year in a sign of how flat the back of the curve is.
"The flattening of the bond curve suggests bond market participants are worried a rapid monetary policy tightening threatens global economic growth," said Carol Kong, a strategist at the Commonwealth Bank of Australia (OTC:CMWAY) in Sydney.
The gap between 10-year and 30-year yields has shrunk by more than 15 bps this month, the sharpest contraction since 2011. Benchmark 10-year yields rose about 2 bps to 1.5996% during the Asian session.
Ahead on Friday the latest print of the Federal Reserve's preferred inflation measure is due at 1230 GMT and is expected to show annual price growth creeping higher.
On Thursday, market inflation gauges eased a little. But they remain at lofty levels and when the Fed meets next week, traders are expecting it to begin whittling back asset purchases.
Fed funds futures were pricing in a roughly 75% chance of a June rate hike on Friday, even though the Fed's taper of asset purchases could end in June as well.
October has also been a brutal month for bonds globally and in Europe yields have continued to rise in spite of an attempt by the European Central Bank (ECB) to hose down concern about rate rises.
"It doesn't feel like the dust has settled on the Bank of Canada and ECB from the last two days, and next week brings the RBA, Fed, and Bank of England," said analysts at NatWest Markets in a note to clients.
"No rest for the rate weary, at least until we get through all those major policy meetings, and of course next Friday's (non-farm payrolls) report."