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TREASURIES-Yields rise after U.S. data supports view of earlier Fed rate hike
October 15, 2015 / 8:33 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 (New throughout, updates prices and market activity, adds comments)

By Sam Forgione

NEW YORK, Oct 15 (Reuters) - U.S. Treasuries yields rose modestly 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 higher. The previous day, yields, which move inversely to prices, fell 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.

“The core CPI data raised the possibilities a little bit that this year is still in play for a Fed rate hike,” said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee.

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 March 2016. The Fed’s first rate hike is expected to hurt Treasuries prices.

Analysts said 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.

Analysts also said that gains in U.S. equity prices showed a preference for riskier assets among investors, leading Treasury yields to extend their modest rise in afternoon trading.

“It was just really momentum,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York, on the continued rise in Treasury yields as the day proceeded.

U.S. 30-year Treasury bonds were last down 17/32 in price to yield 2.87 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.

The benchmark S&P 500 stock index ended 1.49 percent higher. (Reporting by Sam Forgione; Editing by James Dalgleish and David Gregorio)

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