(Updates to U.S. afternoon trading, adds analyst quote, data)
By Dion Rabouin
NEW YORK, March 1 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
Fed funds futures prices showed investors saw a more than 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 on 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
Yields on the 2-year Treasury note rose to 1.308
percent, their highest since August 2009.
"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 data on personal consumption
expenditure, or PCE, that showed the Fed's favored measure of
inflation posting its largest monthly increase in four years.
The selloff was exacerbated by strong gains in U.S. stocks,
which reduced the appetite for safe-haven U.S. government debt.
The Dow moved above 21,000 points for the first time in history
and the S&P 500 and Nasdaq both touched all-time intraday highs.
"Between the risk-on move in equities and this fear that we
could get a rate hike (in two weeks) we saw a lot of traders
scramble and start to price in that eventuality, which meant
they had to start selling a lot of their bonds," said Kim
Rupert, managing director of global fixed income analysis at
Action Economics in San Francisco.
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 likely add to U.S. inflation,
which is nearing the Fed's 2 percent target.
(Reporting by Dion Rabouin; Editing by Lisa Von Ahn and Chizu