Feb 9 (Reuters) - U.S. Treasury yields rose on Friday and two-year yields hit an almost two-month high before key inflation data is due next week, recovering from a brief dip after revisions to inflation data from late last year were relatively modest.
Tuesday’s consumer price index (CPI) for January will provide the next clues on when the Federal Reserve is likely to begin cutting interest rates.
Jobs data last week, which showed that employers added more jobs than expected last month while wages increased by the most in nearly two years, has raised some concerns that price pressures may surprise to the upside.
If the data shows inflation is continuing to moderate, however, that could give the Fed more confidence that it can cut rates.
“The market is still trying to get a sense on how much the Fed can lower interest rates and how quickly, and I think a softer CPI reading next week would certainly go a long way in encouraging the Fed that inflation is under control,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.
Benchmark 10-year note yields reached 4.195%, the highest since Jan. 25. Two-year yields hit 4.499%, the highest since Dec. 13.
The inversion in the yield curve between two-year and 10-year notes was little changed on the day at minus 30 basis points.
Yields briefly dropped after data earlier on Friday showed that U.S. monthly consumer prices rose less than initially estimated in December, but underlying inflation remained a bit warm. The index also increased slightly more than previously reported in October and November.
The revisions were closely watched as last year the consumer price inflation recalculations showed that prices were gaining more than previously thought in late 2022.
“You’re not really seeing as much of a change to inflationary trends on a month-to-month basis as we did last year. It does seem like the revisions were a little bit more modest this time around,” Goldberg said.
Fed officials, including Chairman Jerome Powell, this week have said they want to see more evidence that inflation will continue to decline before cutting rates.
Tuesday's CPI data is expected to show that headline inflation rose by 0.2% during the month, while core prices gained 0.3%.
Retail sales data due on Thursday will also be watched for insight into the strength of the consumer and the rate of growth so far this year.
Traders are pricing in a 18% chance of a March rate cut, down from 64% a month ago, and see a 58% probability of a rate cut by May, according to the CME Group's FedWatch Tool.
(Reporting By Karen Brettell; editing by Jonathan Oatis and Diane Craft)