Yields edge up as traders await inflation data

US Treasury yields edged higher on Tuesday as traders awaited key inflation data due later this week for clues on whether the Federal Reserve is likely to raise interest rates this month. Fed funds futures show 59% odds of a September rate hike. The Labor Department reported employers added far more positions than expected in August, fueling bets on a rate hike at the US central bank's September 15-16 meeting. This week's producer and consumer price reports are seen as the real test, with policymakers looking for further evidence that inflation pressures are continuing to cool. The yield curve between 2- and 10-year notes flattened to 40 basis points. Yields also increased as oil prices hit a six-week high after Iran-backed Houthis in Yemen attacked Saudi energy facilities, setting oil installations ablaze and threatening a major expansion of the six-month-old Middle East war. The 10-year yield is trading near its highest level since October 2023 as investors position for possibly higher interest rates, a 'higher-for-longer' inflation backdrop and a still-resilient economy. Yields rose 1.46 basis points to 4.394% on the 2-year note, while the yield on benchmark 10-year notes gained 1.43 basis points to 4.798%. The strong demand for three-year note auction is expected to continue this week, with Treasury seeing a 'strong demand' for the upcoming sale. Will Compernolle, macro strategist at FHN Financial, said 'the market's waiting on PPI and CPI' and that these reports will dictate next week's Fed decision.