TREASURIES-Yields spike as Trump offers no respite for inflation fears

By Wayne Cole

SYDNEY, April 2 (Reuters) - Treasury yields were jerked higher in Asia on Thursday as dashed hopes for an early end to the Gulf war sent oil prices flying and fanned fears the resulting inflation would close the door to any prospect of easier monetary policy.

Yields on 10-year notes US10YT=TWEB climbed 5 basis points to 4.376% after President Donald Trump offered little clarity on when the conflict might wind down and, crucially, waved off any responsibility for reopening the vital Strait of Hormuz.

A resulting 6% jump in Brent futures LCoc1 saw the market take out another 6 basis points of Federal Reserve rate cuts 0#FF: for this year. No easing is now expected, compared to 50 basis points of cuts before the war began.

"The only thing that really matters is whether the Strait of Hormuz will open soon," said Prashant Newnaha, a senior rates strategist at TD Securities in Singapore. "Trump's speech doesn't imply this is likely to happen as quickly as the markets were expecting."

"Further, the risk of additional upstream counterattacks implies the strait is likely to be shut for at least another month and beyond that is anybody's guess."

The near closure of the strait has thrown a spanner in the works of global supply chains for a host of products from petrol, to gas, jet fuel, fertilisers, chemicals, aluminum, pharmaceuticals and even cement.

The inflationary wave is already being felt with gasoline topping $4 a gallon in some U.S. states and the wider effect still to be felt.

A closely watched survey of manufacturing out on Wednesday showed its measure of prices paid had shot up 19 points in just two months to reach levels typically consistent with annual inflation running at 4%.

The jump in inflation will make it harder for the Fed to countenance a cut in rates even as rising energy costs act as a tax on consumers, and a drag on domestic demand.

That risk saw two-year yields US2YT=TWEB rise 5 basis points on Thursday to 3.856%, leaving them 48 basis points higher than when the conflict started.

Much now depends on the March payrolls report where jobs are expected to bounce by 60,000 after February's dire reading.

"A rebound in job creation will likely see market pricing shift materially in favour of a Fed hike, or two, as has been the case elsewhere across the developed world," wrote analysts at Westpac in a note.