March 1, 2017 / 3:50 PM / 5 months ago

TREASURIES-2-year yield hits highest since 2009 on rate hike bets

3 Min Read

March 1 (Reuters) - U.S. Treasury yields rose broadly on Wednesday, with the 2-year's hitting a more than seven-year high, on increased expectations that the Federal Reserve will raise U.S. overnight interest rates at its March meeting.

Fed funds futures prices showed investors saw about a 65 percent chance of a rate hike this month after comments from two central bank officials on Tuesday.

New York Fed President William Dudley, one of the most influential U.S. central bankers and a permanent voter of the Federal Open Markets Committee, said the case for tightening monetary policy soon had become "a lot more compelling." San Francisco Fed President John Williams said: "A rate increase is very much on the table for serious consideration" at the March 15-16 meeting.

Yields on the 2-year Treasury note rose to 1.308 percent, their highest since August 2009.

The jump in the 2-year yields put the spread between U.S. 2-year Treasuries and German 2-year bunds on pace for its highest closing level since 2000, according to Reuters data.

"It was quite unexpected, the comments from Dudley," said Bruno Braizinha, interest rate strategist at Societe Generale. "He must have felt he needed to get his message across very forcefully. And the market took it very seriously."

Longer-dated Treasuries also saw substantial selling after the release of January's personal consumption expenditure, or PCE, data that showed the Fed's favored measure of inflation posting its largest monthly increase in four years.

The yield on 10-year notes rose to 2.471 percent, the highest since Feb. 16. Prices on 30-year bonds fell by more than 2 points, pushing yields to 3.074 percent, the highest since Feb. 16.

The data followed a Tuesday night speech from U.S. President Donald Trump, who was short on specifics about his already proposed $1 trillion stimulus package, tax cuts and regulation rollbacks. All of those would probably add to U.S. inflation, which is nearing the Fed's 2 percent target.

"The $1 trillion plan seems to have been taken pretty well, but it’s still just a number, and it’s missing details," Braizinha said. "And we've been missing details on tax reform, border tax, regulatory easing." (Reporting by Dion Rabouin; Editing by Lisa Von Ahn)

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