(Bloomberg) -- Traders sold US Treasuries on Friday, pushing the yield on two-year notes to the highest level of the week, after a gauge of consumer inflation expectations unexpectedly rose.

Two-year yields rose as much as five basis points to 4.8655% after the University of Michigan’s latest sentiment survey showed a pickup in short-term inflation expectations. US central bankers in speeches on Friday also expressed concern, with Federal Reserve Bank of Dallas President Lorie Logan saying it’s too early to think about cutting interest rates.

“Front-end Treasuries are not reacting well to the higher inflation expectation readings and Fed comments that reinforced the patience narrative,” said Stefan D’Annibale, head of rates trading and sales at Odeon Capital Group.

Two-year yields have risen more than 15 basis points from their May 3 low. The University of Michigan’s latest sentiment survey found consumers expect inflation of 3.5% over the next year, up from the 3.2% expected in April. A selloff in Canadian bonds after a hotter-than-expected jobs report also contributed to the upward pressure on US short-term yields.

Halting progress in returning inflation to the Fed’s 2% goal has eroded expectations for interest-rate cuts beginning this year. Several Fed officials signaled the central bank will proceed carefully as it weighs when to begin cutting interest rates.

Fed Governor Michelle Bowman said she doesn’t expect it will be appropriate for the Fed to cut interest rates in 2024. Chicago Fed President Austan Goolsbee, meantime, avoided giving any hints on when is the right time to lower borrowing costs, saying the decision will depend on incoming economic data.

Interest-rate swaps showed that traders have fully priced in a rate cut by November, and a second reduction by the January meeting.

The decline in Treasuries comes at the end of a week that saw 10-year yields little changed around 4.5% — with investors absorbing auctions of $125 billion of government bonds, ranging from three- to 30-year maturities, without balking.

Such decent auction results suggests that investors see more reward than risk in owning bonds at this stage, said Roger Hallam, global head of rates at Vanguard Asset Management.

“The Fed has said the bar to a rate hike is high — while the bar to easing, especially if employment softens, is not that high,” said Hallam. “There is a case for pricing in some cuts for the bond market.”

A Bank of America client survey released Friday echoed Hallam’s sentiment. About 49% of respondents said that being long interest-rates was their highest-conviction trade of the year, up from 30% in April, according to the survey, which was conducted after the May 1 Fed meeting. By setting a very high bar for further hikes, Fed Chair Jerome Powell “triggered a dip buying mentality,” BofA strategists led by Ralf Preusser wrote in the survey report.

A separate report from the bank earlier showed global bond funds had their biggest weekly inflows in more than three years.

The resilience of that bullishness will be tested next week when the government publishes data on the producer price index, consumer price index and retail sales. Economists expect a 0.4% monthly increase in the CPI index in April, matching the rise in the previous month.

The data will likely show inflation staying at “stubbornly high levels,” according to Lindsey Piegza, chief economist for Stifel Financial Corp.

“The Fed and investors alike are looking for meaningful reprieve for inflation,” she said on Bloomberg’s Surveillance. “But unfortunately I think they’re going to need to wait some time longer.” 

--With assistance from Michael Mackenzie and Reade Pickert.

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