TREASURIES-US yields inch higher as Fed's Jackson Hole meeting gets underway

By Matt Tracy

WASHINGTON, Aug 21 (Reuters) - Yields on U.S. Treasuries inched higher on Thursday following a high weekly jobless claims print and ahead of widely anticipated remarks by Federal Reserve Chair Fed Powell on Friday.

The yield on the benchmark U.S. 10-year note US10YT=RR ticked up 1.8 basis points (bps) from late Wednesday to 4.314%.

The two-year note's yield US2YT=RR, which typically moves in step with interest rate expectations, was last 1.2 bps higher at 3.764%.

It briefly slipped Wednesday afternoon after minutes of the Fed's July meeting showed that two policymakers who dissented against the central bank's decision to leave interest rates unchanged last month appeared not to have been joined by their colleagues.

The rise in yields on Thursday followed a new report which showed the highest increase in the number of Americans filing for new jobless claims since late May. They rose by 11,000.

Meanwhile the Philadelphia manufacturing survey, a gauge of manufacturing activity in the U.S. Mid-Atlantic region, slid overall with new orders and shipments both erasing their gains from last month. Treasuries though showed little reaction to this data.

"Overall, it was a disappointing round of data that has contributed to a modest firming in Treasuries, although the implications for the near-term monetary policy outlook are limited," said Vail Hartman, analyst on the U.S. rates strategy team at BMO Capital Markets, in a written note.

The main market mover this week, though, is the Fed's annual meeting in Jackson Hole, Wyoming, which kicks off on Thursday. Bond investors will closely watch Friday's remarks by Chair Powell, whose comments are expected to signal the Fed's rates course in the near term.

Fed funds futures, which are tied to the U.S. central bank's monetary policy, have priced in a 79.6% chance of easing in September, according to the CME's FedWatch. This compares with 83% on Wednesday and 94% a week ago.

The market has put odds on about 56 bps in easing this year and a total of 126 bps in rate declines by the end of 2026, FedWatch shows.

The closely watched gap between yields on two- and 10-year Treasury notes US2US10=TWEB, considered a gauge of growth expectations, was at 54.9 bps and virtually unchanged from Wednesday's level. The curve has steepened recently as the market expects the Fed to resume its cutting cycle next month.

The next major data release will come later Thursday morning with the latest existing home sales figures.

In addition, the U.S. Treasury Department is scheduled to hold 4-week and 8-week bill auctions later Thursday morning. It will also announce six-, 13- and 26-week bills.