June 30, 2017 / 6:43 PM / 25 days ago

TREASURIES-Yields rise as falling inflation seen unlikely to delay rate hikes

3 Min Read

 (Adds data, updates prices)
    * Inflation cools in May
    * 10-year note yields highest in six weeks
    * Fed minutes, payrolls in focus next week

    By Karen Brettell
    NEW YORK, June 30 (Reuters) - U.S. Treasury yields rose on
Friday as inflation data was not seen as weak enough to delay
the Federal Reserve’s expected path on interest rate hikes, and
as investors worried about less accommodative central banks in
Europe.
    The personal consumption expenditures (PCE) price index fell
0.1 percent in May from April and, when food and energy were
excluded, was up 0.1 percent.             
    The 12-month reading for the so-called core inflation has
been slowing since February, although Fed Chair Janet Yellen
earlier this month said the dip was likely temporary.
    “It’s not enough to make you optimistic about either
delaying the Fed or about the potential for actual inflation,”
said Aaron Kohli, interest rate strategist at BMO Capital
Markets in New York.
    Fed officials have indicated another rate hike this year is
likely, while the U.S. central bank is also likely to begin
slowly reducing its bond holdings.
    Other data on Friday showed that U.S. consumer spending rose
modestly in May. The University of Michigan's consumer sentiment
index fell also fell this month to its lowest since November.
            
    Benchmark 10-year notes             fell 7/32 in price to
yield 2.29 percent, after reaching an more than six-week high of
2.30 percent overnight, up from 2.27 percent late on Thursday.
    The yields have risen from 2.13 percent on Tuesday on
concerns that European central banks would also be less
accommodative at the same time as the Fed continues its
tightening path.
    The 10-year notes are on track for their biggest weekly
yield increase since the week ending March 3. 
    European Central Bank President Mario Draghi said on Tuesday
the ECB might tweak its stimulus so it does not become more
accommodative as the economy recovers. Sources on Wednesday,
however, said he had not intended to signal imminent tightening.
                         
    Bank of England Governor Mark Carney said on Wednesday that
a rise in British interest rates is likely to be needed as the
economy comes closer to running at full capacity.             
    Next Friday’s U.S. employment report for June will be the
next major economic release to give guidance on the Fed’s next
rate hike. The U.S. central bank is also due to release minutes
from its June meeting on Wednesday.

 (Editing by Meredith Mazzilli and Chizu Nomiyama)
  
 
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