TREASURIES-US yields rise after new sanctions on Russia as markets await inflation data

By Chuck Mikolajczak

NEW YORK, Oct 23 (Reuters) - U.S. Treasury yields rose on Thursday after President Donald Trump slapped Russia's two biggest oil companies with sanctions, while investors braced for an upcoming reading on inflation.

The sanctions targeting Rosneft and Lukoil sparked a jump in global oil prices of about 5% and marked a policy shift by Trump as he tries to end the war in Ukraine, while India weighed cutting Russian imports.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB rose 3.3 basis points to 3.986% after hitting a session high of 3.997%.

"The oil thing just made things a little bit worse overnight, with not only the U.S., but the EU, basically sanctioning oil, and then the rise in oil just didn't fare well for bond yields," said Tom di Galoma, managing director at Mischler Financial Group in Stamford, Connecticut.

"Right now, with the lack of data, the market can really only focus on what's being said about oil or what's being said about possible tariffs on China, or some kind of new tariff on Russia, that's kind of what we're trading - headlines."

MARKETS FOCUSING ON RELEASE OF INFLATION DATA

The yield on the 30-year bond US30YT=TWEB rose 3 basis points to 4.569%.

Markets have been dealing with a dearth of economic data due to the U.S. government shutdown, now in its 23rd day and the second-longest in history.

However, the U.S. Bureau of Labor Statistics said last week it would publish the consumer inflation report for September on Friday to assist the Social Security Administration with its annual cost-of-living adjustment for 2026 for millions of retirees and other benefits recipients, which could influence market expectations for the path of Federal Reserve interest rate cuts.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 51.7 basis points.

The two-year US2YT=TWEB U.S. Treasury yield, which typically moves in step with expectations for the Fed's policy rate, rose 2.3 basis points to 3.467%.

Markets almost have fully priced in a rate cut of at least 25 basis points at the U.S. central bank's policy meeting next week, according to CME Group's FedWatch Tool, with expectations for a cut currently at 98.9%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.365% after closing at 2.345% on Wednesday, its highest level in a week.

The Treasury will auction $26 billion in five-year TIPS later on Thursday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.303%, indicating the market sees inflation averaging about 2.3% a year for the next decade.