TREASURIES-Yields tick higher ahead of Easter long weekend

By Alden Bentley

NEW YORK, April 17 (Reuters) - Yields on U.S. Treasuries edged higher in uneventful pre-holiday trade on Thursday, wrapping up an abbreviated week on a calmer note after President Donald Trump's early April tariff flip- flops nearly blew up the bond market.

Trade wrapped up early ahead of Good Friday, when many exchanges around the world are closed. U.S. trading resumes Monday but some markets remain closed to commemorate Easter.

The yield on the benchmark U.S. 10-year Treasury note US10YT=TWEB rose 5.2 basis points (bp) from late Wednesday to 4.331%. The two-year US2YT=TWEB yield, which typically moves in step with interest rate expectations, rose 2.1 basis points to 3.807%, changing direction after dipping to 3.758%, an eight-day low.

Federal Reserve Bank of New York President John Williams said Thursday he sees no imminent need for a change in central bank interest rate policy as Trump administration tariffs are likely to drive up inflation, weaken growth and push up unemployment.

His comments echoed those of Fed Chair Jerome Powell, who told the Economic Club of Chicago a day earlier that the U.S. central bank would wait for more data on the economy's direction before changing interest rates, noting that there was a potentially tough situation developing for the Fed in which inflation is pushed higher by tariffs while growth and potentially employment weaken.

Trump got little market reaction after posting on his Truth Social social media platform early on Thursday that Powell's termination "cannot come fast enough." He called for the U.S. central bank to cut interest rates, the sort of pressure that Powell on Wednesday pledged to resist as the Fed grapples with an outlook complicated by Trump's own policies.

Later on Thursday Trump said he believes the Fed chairman will leave his job if he asks him to do so, telling reporters he was not happy with Powell.

"He has called for Powell's departure a few times now," noted Ross Bramwell, market strategist at Homrich Berg in Atlanta. "But I don't believe that President Trump would make that move at this time. He would get some pushback from other Republicans in the Senate and the House...even public opinion would probably go against as most people have confidence in the market because of an independent Fed."

Thursday's release of data showing fewer-than-expected housing starts last month, down 11.4% from February's starts, with a surprisingly large 1.6% increase in building permits, was not much of an event. Same with data showing 215,000 Americans filed for unemployment claims last week, down from the previous week's upwardly revised 224,000 claims.

Late Wednesday the monthly Treasury International Capital System report showed Japan and China, the two largest foreign holders of Treasury securities, increased their hoards in February. The report was notable for showing a 3.4% rise in foreign holdings in the run-up to the recent market turmoil that brought much talk of loss of faith in the dollar and U.S. assets like Treasuries.

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 a gauge of economic expectations, was at a positive 52.5 basis points, steeper than late Wednesday's +48.9 bp.

The yield on the 30-year bond US30YT=TWEB rose 5.64 bp to 4.8030%.

The Treasury sold $25 billion of five-year Treasury Inflation Protected Securities on Thursday at a high yield of 1.702% and a bid-to-cover ratio of 2.28, the second lowest for that indicator of demand, after December, dating back to 2019.

The sale comes as inflation expectations shown in surveys by the New York Fed and University of Michigan have soared, even as the market-based reflection of sentiment, namely inflation breakevens implied by TIPS, have remained tame.

"The level of uncertainty is probably elevated. The level of conviction is probably kind of depressed because we're trying to figure out this shift towards tariffs," said Jack McIntyre, portfolio manager at Brandywine Global. "Does it move the needle more on inflation or growth? So it's relevant to the TIPS conversation. Ultimately I think it's going to be more negative for growth."

The breakeven rate on five-year TIPS US5YTIP=TWEB was last at 2.398% after closing at 2.337% on Wednesday.

The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.233%, indicating the market sees inflation averaging just over 2.2% a year for the next decade.

The term structure in Fed funds futures 0#FF: shows traders are betting on at least a 25 basis point cut by the Federal Open Market Committee at almost every meeting in 2025, for a total easing of 100 bps from the 4.25% to 4.50% range in place since December.