TREASURIES-Yields rise near 5-month highs after jobless claims data; TIPS auction strong

(Updates as of 3:30 pm ET)

By David Randall

NEW YORK, April 18 (Reuters) - U.S. Treasury yields hovered near their highest levels since November on Thursday as investors weighed steady labor market data and warnings from Federal Reserve officials that the decline in inflation may have stalled.

Yields have jumped near five-month highs this week following stronger-than-expected inflation data last week. Markets are now pricing in a total of 42 basis points in interest rate cuts by the end of this year, down from more than 160 basis points in cuts expected in January, and now see the first cut coming in September, according to CME's FedWatch Tool.

Data from the Labor Department on Thursday showed the number of Americans filing new claims for unemployment benefits was unchanged last week, pointing to continued labor market strength. Initial claims for state unemployment benefits remained at a seasonally adjusted 212,000 for the week ended April 13. Economists polled by Reuters had forecast 215,000 claims in the latest week.

"The extremely steady reads on recent claims data suggest that the trend of solid payroll increases should continue, and that the unemployment rate will remain solidly below 4%," said Thomas Simons, U.S. economist at Jefferies.

Fed officials have noted the continued strength of the U.S. labor market as a reason to delay cutting rates to avoid a reacceleration of inflation.

Atlanta Fed President Raphael Bostic suggested on Thursday that the Fed will not be able to cut rates until the end of the year as inflation returns to the U.S. central bank's 2% target more slowly than many had expected.

"For me, that's OK ... I'm not in a mad-dash hurry to get there," he said.

Bostic was the latest in a number of Fed officials who have sounded a hawkish tone on rates.

Cleveland Fed President Loretta Mester said on Wednesday that she wants to see more confidence that inflation is easing before the central bank begins cutting rates.

"At some point, as we get more confidence, we will start to normalize policy back to a less restrictive stance, but we don't have to do that in a hurry," Mester said.

Fed Governor Michelle Bowman warned in a separate speech on Wednesday, "Progress on inflation has slowed, and ... maybe it is even stalled at this point."

The yield on 10-year Treasury notes was up 5.2 basis points to 4.637% and was hovering near five-month highs. The yield on the 30-year Treasury bond was up 3.6 basis points to 4.736%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 5.6 basis points at 4.988%.

Yields continued to rise, in the opposite direction of prices, despite slightly weaker than expected readings of existing home sales and U.S. leading economic indicators.

The results of the U.S. Treasury's $23 billion auction of U.S. five-year Treasury Inflation-Protected Securities on Thursday were stronger-than-expected across almost all metrics. The note's high yield stopped at 2.242%, lower than the expected rate at the bid deadline, which suggested that investors were willing to settle for a lower yield to take the security.

Then bid-to-cover ratio, another measure of demand, was 2.58, slightly above the 2.55 seen in December, but much higher than October's 2.38. The note's bid-to-cover ratio was the highest since June 2022. (Reporting by David Randall; Additional reproting by Gertrude Chavez-Dreyfuss. Editing by Chizu Nomiyama, Josie Kao, Nick Zieminski and Jonathan Oatis)