NEW YORK, Dec 17 (Reuters) - Yields on U.S. Treasuries slid on Thursday, a day after the Federal Reserve increased its benchmark rate by 0.25 percentage point, signaling confidence in the strength of the economy and as investors turned their attention to timing of the next hike.
Yields on longer-dated Treasuries fell in morning trading after data showed that the number of Americans filing for unemployment benefits last week fell from a five-month high, suggesting labor market healing that could lead to further interest rate hikes next year.
“Things are settling down post Fed, but when will the Fed hike again? That’s now front and center. If data over the next few months comes in solid, it’ll clear the way for the Fed to keep hiking,” said Gennadiy Goldberg, interest rate strategist at TD Securities in New York.
Shorter-dated yields rose sharply after Fed Chair Janet Yellen made clear that the move was a tentative beginning to a “gradual” tightening cycle, and that in deciding its next increase the Fed would put a premium on monitoring inflation, which remains mired below target.
While the rate move had been almost fully priced in, investors were paying close attention to the words used by the central bank to communicate the pace of future hikes.
Traders had been increasing their curve-flattening positions in anticipation of a 2015 rate hike, which involved reducing holdings of short-dated Treasuries and increasing stakes in longer ones.
“A Fed in a normalization cycle will put disproportionate pressure on the short end of the curve and the long-end is less controlled by Fed policy and more controlled by inflation,” said Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management in Portland, Oregon.
U.S. benchmark 10-year Treasury notes were last up 9/32 in price to yield 2.257 percent, down from 2.289 percent late on Wednesday.
The U.S. 30-year bond was last up 27/32 in price to yield 2.960, down from 3.00 late on Wednesday. (Reporting by Tariro Mzezewa; Editing by Frances kerry)