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TREASURIES-2-year yields hit nearly 9-year high after data backs higher inflation
October 17, 2017 / 2:13 PM / a month ago

TREASURIES-2-year yields hit nearly 9-year high after data backs higher inflation

    * 2-year yields hit highest in nearly 9 years
    * U.S. import prices rise to highest since June 2016

    By Dion Rabouin
    NEW YORK, Oct 17 (Reuters) - U.S. 2-year Treasury yields
rose to their highest level since November 2008 on Tuesday after
the strongest reading on U.S. import prices in more than a year
pushed inflation expectations higher.
    Yields on 5-year notes touched their highest level since
Oct. 6 and most Treasuries hit session highs following the
release of the data. The Labor Department said import prices
jumped 0.7 percent last month, the biggest gain since June 2016,
after an unrevised 0.6 percent rise in August.
    Treasury yields were lower earlier in the day and saw a
reversal at around 8 a.m. EST (1200 GMT) and accelerated their
move higher after the data release at 8:30 a.m. EST.
    "It looks like the move started before the data, but that
definitely accelerated it," said Guy LeBas, chief fixed income
strategist at Janney Montgomery Scott LLC in Philadelphia.
"Market participants are kind of hanging on to a thread of hope
about inflation numbers."
    The strong import prices, as well as export prices, which
came in at double the prediction of economists surveyed by
Reuters, doubled down on a theme from Monday when traders had
sold U.S. government debt on the expectation of higher interest
rates and inflation.
    A report that U.S. President Donald Trump had been impressed
by his meeting with economist John Taylor, who is seen by market
participants as favoring higher interest rates than current
Federal Reserve Chair Janet Yellen, pushed the 2-year note to
nearly nine-year highs Monday.
    Trump is expected to announce his choice to take over the
Fed next year in the near future.
    LeBas said Taylor's "resurgent candidacy" had also helped to
underpin the push higher in yields on Tuesday.
    Jim Vogel, interest rate strategist at FTN Financial in
Memphis, also pointed to a cooling in an earlier buying spree of
European bonds. 
    German bund yields fell to their lowest levels since Sept.
12 while British gilts hit their lowest since Sept. 25 during
remarks from Bank of England Governor Mark Carney who said that
uncertainty had dragged investment and that productivity had
picked up less than expected.
    That move had largely unwound around the time U.S. yields
began their push higher.
    The yield on U.S. 2-year notes            rose to 1.554
percent, highest since Nov. 3, 2008.
    Benchmark 10-year note yields             rose to 2.329
percent, but retraced much of the move higher in later trading.
They were last down 1/32 in price to yield 2.314 percent.

 (Reporting by Dion Rabouin; Editing by Susan Thomas)
  

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