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CORRECTED-TREASURIES-2-year yields highest since 2008 on news of Trump-Taylor meeting
October 16, 2017 / 8:36 PM / 2 months ago

CORRECTED-TREASURIES-2-year yields highest since 2008 on news of Trump-Taylor meeting

(Corrects seventh paragraph to say yields hit session highs, not session lows)

By Dion Rabouin

Oct 16 (Reuters) - U.S. Treasury yields rose on Monday after a report that President Donald Trump was favoring Stanford economist John Taylor to head the Federal Reserve, and Fed Chair Janet Yellen’s weekend comments that the economy remained strong.

Taylor impressed Trump during their meeting at the White House last week, Bloomberg reported on Monday.

The former Fed board member is seen as more hawkish than Yellen and other names being considered to take over the central bank next year.

“You would see that the Fed would be a little faster in tightening” interest rates, said Cantor Fitzgerald Treasury analyst Justin Lederer. “You’d see a bit more aggressive, hawkish Fed.”

Yellen said on Sunday the strength of the labor market called for continued gradual increases in interest rates despite subdued inflation.

Yields for the two-year note, most affected by expectations for Fed rate hikes, rose to 1.546 percent, the highest since November 2008.

Most U.S. Treasury yields rose to session highs after the Bloomberg report, which also coincided with a meeting between Trump and Senate Majority Leader Mitch McConnell. The two said they were united on passing a tax reform bill and other items on the Republican agenda.

The tax cuts, if passed, would be expected to drive U.S. spending and inflation higher.

Yields on notes from two to five years rose, outpacing longer-dated maturities as the yield curve flattened.

Benchmark 10-year Treasury notes dropped 5/32 in price to yield 2.300 percent.

Yellen’s speech suggested the U.S. central bank remains tied to its projection of three interest rate hikes this year, which would likely mean an increase at its December meeting.

The Fed announced at its last meeting that it would begin paring its $4.5 trillion of bond holdings this month.

Fed funds futures prices show investors see more than a 90 percent chance of a hike at the Fed’s December 12-13 policy meeting. (Reporting by Dion Rabouin; Editing by Nick Zieminski and Richard Chang)

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