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TREASURIES-Yields rise after U.S. data supports view of earlier Fed rate hike
October 15, 2015 / 2:35 PM / 2 years ago

TREASURIES-Yields rise after U.S. data supports view of earlier Fed rate hike

* U.S. core CPI rose more than expected in September

* Data casts slight doubt on 2016 Fed rate hike view

* Views on 2016 Fed hike largely intact, tempering yield rise

By Sam Forgione

NEW YORK, Oct 15 (Reuters) - U.S. Treasuries yields rose slightly on Thursday after data showed a measure of U.S. consumer prices that strips out food and energy costs rose more than expected in September, marginally supporting views of a 2015 Federal Reserve rate hike.

The so-called core CPI rose 0.2 percent last month, Labor Department data showed, while economists polled by Reuters had expected the measure to remain unchanged from August at 0.1 percent. In the 12 months through September, core CPI increased 1.9 percent, the largest gain since July 2014, after rising 1.8 percent in August.

The data led Treasury yields, which move inversely to prices, higher after yields fell on Wednesday on weaker-than-expected U.S. September retail sales and producer price data.

The data on Wednesday had reinforced traders’ expectations that the Fed would not hike interest rates until next year, leading Treasury yields to hit their lowest in over a week.

“On the margin, today’s data lends some credence to the possibility that the Fed could still build a 2015 case for liftoff,” said Neil Bouhan, government bond strategist at BMO Capital Markets in Chicago.

U.S. rates futures on Thursday, however, suggested traders anticipate the first Fed rate increase since 2006 would occur at the Federal Open Market Committee meeting in April 2016. The Fed’s first rate hike is expected to hurt Treasuries prices.

Analysts said that the core CPI data, while casting some doubt on the view that the Fed would delay hiking until next year, was not enough to dramatically shift expectations. As a result, yields remained within Wednesday’s trading ranges.

“The core CPI wasn’t enough to really change people’s minds about the Fed,” said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York. He said traders broadly were still expecting the Fed to hike rates in 2016.

U.S. 30-year Treasury bonds were last down 12/32 in price to yield 2.86 percent, from a yield of 2.84 percent late Wednesday. Benchmark 10-year Treasury notes were last down 10/32 to yield 2.02 percent, from a yield of 1.98 percent late Wednesday.

U.S. three-year notes, which are among the short-dated notes considered most vulnerable to Fed rate hikes, were last down 4/32 to yield 0.89 percent, from a yield of 0.84 percent late Wednesday. (Reporting by Sam Forgione; Editing by James Dalgleish)

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