U.S. yields higher after Fed minutes rally, dragged by German bonds

U.S. Treasury yields inched higher on Friday, tracking a sell-off in German bonds and offsetting some of their Wednesday gains, which were led by expectations of slower interest rate hikes by the U.S. Federal Reserve.

Treasury yields, which move inversely to prices, fell on Wednesday after the Fed's November meeting minutes showed a significant majority of policymakers agreed it would likely soon be appropriate to slow the pace of interest rate hikes as the central bank keeps fighting decades-high inflation.

But on Thursday, a holiday in the United States, European Central Bank board member Isabel Schnabel pushed back against calls from many of her colleagues for smaller rate increases by the ECB, saying this could hamper efforts to bring down inflation.

German bonds sold off on Friday, with German 10-year bond yields (DE10YT=RR), seen as a benchmark for the currency bloc, rising about 12 basis points.

This spilled over on a global basis, said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. "Europe continues to have a huge influence on the U.S. Treasury bond market," he said.

Benchmark U.S. Treasury 10-year yields US10Y climbed about to 3.731% and two-year note yields (US2YT=RR) were up about two basis points to 4.502%.

Meanwhile, recession concerns continued to weigh on markets.

Wednesday's post-Fed U.S. bond market moves had seen yields on 10-year notes drop to a huge 79 basis-point deficit relative to two-year yields, a curve inversion that had not been seen since the dot-com bust of 2000.

On Friday, that part of the curve (US2US10=TWEB) - seen by many as a harbinger of an upcoming economic contraction when inverted - remained deeply in negative territory, though slightly steeper at -77.4 basis points.

Releases of jobs data and the personal consumption expenditures price index next week may give investors some clues on the direction of inflation and monetary policy.

Fed Chair Jerome Powell is also scheduled to speak about the economic outlook and the labor market at an event on Wednesday.

November 25 Friday 10:09AM New York / 1509 GMT