* Housing starts unexpectedly fall
* Traders expect June rate hike
* U.S. factory output grows in April
By Karen Brettell
NEW YORK, May 16 U.S. Treasury yields fell on
Tuesday after data showing U.S. homebuilding unexpectedly fell
in April, adding to recent economic weakness that has raised new
doubts over how many times the Federal Reserve will raise
interest rates this year.
Housing starts dropped 2.6 percent to a seasonally adjusted
annual rate of 1.17 million units, the Commerce Department said
on Tuesday. That was the lowest level since last November and
followed a downwardly revised rate of 1.20 million units in
“People had been anticipating continued strength in the
housing market even with rising rates, based on the momentum
from 2016,” said Jim Vogel, an interest rate strategist at FTN
Financial in Memphis, Tennessee.
“Traders and investors are going to be sensitive to any
indication that there might be more rate sensitivity than people
thought,” Vogel added.
Benchmark 10-year notes were last down 2/32 in
price to yield 2.35 percent, down from 2.36 percent before the
The weak housing data came after a New York state
manufacturing survey on Monday turned negative for the first
time since October, and after weaker-than-expected U.S. consumer
inflation data for April on Friday.
Bucking the trend was other data on Tuesday showing that
U.S. factory output in April rose at its fastest clip in three
years on a surge in auto production.
Ten-year U.S. bond yields have largely held in a range
between around 2.20 percent and 2.40 percent since March 22 as
investors wait on further clarity on whether the Trump
administration is likely to pass tax and fiscal overhauls this
The measures are expected to boost economic growth, making
further interest rate increases more likely.
Futures traders have reduced expectations that the Fed will
raise rates in June, though a rate increase that month is still
viewed as likely.
Futures traders are pricing in a 74 percent chance of a June
hike, down from 83 percent a week ago, according to the CME
Group’s FedWatch Tool.
The traders see only a 46 percent chance that two or more
rate increases will be made by the Fed’s December meeting,
however, despite Fed officials repeating that they view two
additional rate increases this year as likely.
(Editing by Chizu Nomiyama)