March 21, 2018 / 7:10 PM / in a year

TREASURIES-Yields rise after Fed hikes rates and sees 2 more hikes in 2018

 (Recasts with Fed statement; adds quotes; updates prices)
    * Fed policy makers largely split over need for 3 or 4 rate
    * Two-year yield hits highest level since Sept. 2008 
    * U.S. trade deficit widens in fourth quarter

    By Karen Brettell
    NEW YORK, March 21 (Reuters) - U.S. Treasury yields rose on
Wednesday, with two-year yields hitting more than nine-year
highs, after the Federal Reserve raised interest rates and
forecast two more hikes for 2018, signaling growing confidence
that U.S. tax cuts and government spending will boost the
economy and inflation.
    Policymakers were largely split as to whether a total of
three or four rate hikes would be needed this year in their rate
projections known as the “dot plot,” because the outlooks are
plotted on a chart. They predicted rates would rise three times
next year and two times in 2020."d
    Heading into this week's policy meeting, many market
participants expected that the U.S. central bank would indicate
that four rate hikes this year was a higher possibility.
    “One more dot shift and we would have gotten the expectation
for four rate hikes this year, so they were pretty close to
moving in that direction,” said Kathy Jones, chief fixed income
strategist at Schwab Center for financial research in New York.
    A jump in consumer prices in January increased expectations
for four rate hikes in 2018, though February’s consumer price
index last week showed prices cooled that month.             
    Two-year note yields           , which are highly sensitive
to interest rate policy, jumped as high as 2.366 percent, the
highest since September 2008, before falling back to 2.320
    Benchmark 10-year note yields             increased to 2.936
percent, the highest since March 12, before retracing to 2.916
    Concerns about rising bond supply as the government faces a
widening trade deficit and plans higher budget spending has also
been weighing on the market this year.
    More money for border security and fighting Russian election
hacking was expected to be included in a $1.3 trillion U.S.
government spending bill taking shape in Congress on Wednesday.
    On the economy, data on Wednesday showed the trade deficit
widened to $128.2 billion in the fourth quarter.             
    A worsening deficit is seen as a likely drag on growth.
    “The recent trade data that we got show huge deficits, which
is going to feed into first-quarter GDP,” said Subadra Rajappa,
head of U.S. rates strategy at Societe Generale in New York.
    Investors are also focused on how international countries
are responding to U.S. plans to impose trade tariffs.
    Yields briefly dipped earlier on Wednesday after The Wall
Street Journal reported that China is planning countermeasures
against U.S. trade tariffs.             

 (Additional reporting by Kate Duguid in New York
Editing by Leslie Adler)
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