NEW YORK, June 26 (Reuters) - U.S. Treasury yields rose on Wednesday amid a pick up in inflation in other countries, worries around liquidity at the end of the month, and fears of intervention from Japanese authorities to boost the yen.
Higher-than-expected inflation in Canada lifted U.S. yields on Tuesday. On Wednesday it was the turn of Australia, where consumer inflation accelerated to a six-month high in May catching traders off-guard and prompting markets to raise the chances of another interest rate hike this year.
Given the lack of significant U.S. economic data on the calendar on Wednesday, yields were also drifting higher ahead of government issuance, later on Wednesday, of $70 billion in five-year notes, part of $183 billion in total coupon debt sales by the Treasury this week.
"There's a bit of a concession building into the auction as we get more supply this week," said Subadra Rajappa, head of US rates strategy at Societe Generale.
In Japan, the yen dropped to its lowest level since 1986 against the dollar, sparking concerns there would be another intervention from Japanese authorities to boost the currency - a move which could put some pressure on Treasuries.
Meanwhile, as the end of the month and the quarter approaches, liquidity in money markets could become challenging as dealers close their books, prompting sales in Treasuries.
"There's a bit of concern about what happens in repo (repurchase agreements) heading into month end, maybe some pressures there," Rajappa said.
On the monetary side, Fed officials reiterated this week that more inflation data is needed for the central bank to move to a less restrictive stance.
On Wednesday, traders of futures contracts tied to the policy rate were betting on a total of 45 basis points in rate cuts for 2024. Personal consumption expenditures inflation data on Friday will be a key factor for investors to assess the extent of any rate cuts this year.
Benchmark 10-year yields and 30-year yields were up about six basis points to 4.296% and 4.431%, respectively. Two-year yields, which tend to more closely reflect monetary policy expectations, were roughly unchanged at 4.735%.
The gap between two- and 10-year yields remained deeply negative at about minus 44 basis points, but smaller than on Tuesday, when it hit its widest since December at minus 51.6 basis points.
An inversion in that part of the yield curve, which occurs when shorter-dated Treasuries yield more than longer-dated ones, is closely watched by investors as it has historically signalled a recession is coming.
(Reporting by Davide Barbuscia; Editing by Anil D'Silva)
