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TREASURIES-Yields climb on outlook for multiple U.S. rate hikes
December 15, 2016 / 8:26 PM / a year ago

TREASURIES-Yields climb on outlook for multiple U.S. rate hikes

* U.S. CPI data show tame inflation
    * Jobless claims, Philly Fed business index positive overall
    * Fed fund futures pricing gradual rate hike pace

 (Adds comment, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Dec 15 (Reuters) - U.S. Treasury yields rose on
Thursday, boosted by the prospect of more interest rate
increases by the Federal Reserve next year, although those on
long-dated bonds came off their highs after fairly tame consumer
inflation data for November. 
    Benchmark U.S. 10-year yields hit more than two-year highs,
while yields on two-year notes touched more than seven-year
peak. The belly of the curve also climbed to multi-year peaks,
with U.S. five-year notes rising to their highest l
in 5-1/2 years and seven-year notes hitting almost
three-year peaks.
     The Fed's policy-setting committee, which raised rates by a
quarter point on Wednesday, said it anticipates three more rate
increases in 2017, one more than what was forecasted at the
September meeting. 
    "The trend has been your friend, if you're bearish on
Treasuries," said Michael Wallace, global markets strategist, at
Action Economics in San Francisco. 
    "I am not buying though into that whole Fed trajectory. We
have been bitten a few times before - the Fed was in the hopper
for four rate hikes in 2016, and we only got one."
    Yields came off highs, however, after the release of soft
U.S. inflation data.
    The consumer price index rose just 0.2 percent last month,
after advancing 0.4 percent in October. Gasoline price increases
slowed and food costs remained soft during the month, pulling
the index lower. 
    That said, other pieces of data such as jobless claims and
the Philadelphia Federal Reserve business index were solid
overall, supporting the Fed's hawkish stance on the economy and
    Fed funds futures also showed a gradual rate hike path so
far, with a 40 percent chance for tightening by the March
meeting, and a 50 percent probability for a May rate increase.
    In late trading, 10-year prices were down 19/32,
yielding 2.594 percent, up 7 basis points from levels late on
    U.S. 30-year bond yield prices were down 6/32,
yielding 3.155 percent, up from 3.146 percent late Wednesday.
    The yield curve was also flatter, with the spread between
U.S. 5-year notes and 30-year bonds at 107 basis points, a nod
to the additional rate hikes expected by the Fed. That was the
flattest curve since early September.
    "The front end was confronted with a slightly more
aggressive rate hike stance than expected," said Action
Economics' Wallace.
    "The global forces have also been more deflationary in terms
of China growth and the situation in Europe. So that gives the
long end a little bit of a breathing room."

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu
Nomiyama and Paul Simao)

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