* Consumer price inflation rises more than expected
* Traders increase odds of December rate hike
By Karen Brettell
NEW YORK, Sept 16 U.S. Treasury yields rose on
Friday after data showed that U.S. consumer prices increased
more than expected in August, raising the odds that the Federal
Reserve will raise rates later this year.
The Labor Department said its Consumer Price Index rose 0.2
percent last month after being unchanged in July.
The so-called core CPI, which strips out food and energy
costs, increased 2.3 percent in the 12 months through August,
which is above the Fed's target of 2 percent annual inflation.
Traders had reduced expectations that the U.S. central bank
will raise rates this year on Thursday after retail sales fell
more than expected in August. The odds of a December hike rose
back above 50 percent on Friday after the consumer inflation
"It certainly is another thing that could help them increase
their trend towards normalization," said Mary Ann Hurley, vice
president in fixed income trading at D.A. Davidson in Seattle.
The Fed's meeting statement next week will be watched for
any indications that a rate hike is likely later this year, with
investors pricing in a low probability of a rate increase this
"They could change the narrative of their policy statement,
they could indicate that something is coming in December," said
Futures traders are now pricing in a 51.2-percent chance the
U.S. central bank will raise rates at its December meeting, up
from 47.5 percent on Thursday, according to the CME Group's
The odds of a September rate hike is unchanged at 12
Benchmark 10-year notes were last up 4/32 in
price to yield 1.69 percent, after trading at 1.67 percent
before the data.
The yield curve between five-year note yields and 30-year
bond yields flattened to 125.60 basis points,
after reaching its steepest levels in two-and-a-half months on
Thursday at 130 basis points.
(Editing by Nick Zieminski)