TREASURIES-Yields jump after data shows surging consumer prices

* CPI shows largest gain in 4 years

* Two-year yields highest since Dec (Shanghai: 600875.SS - news) . 28

* Yellen to testify to lawmakers

By Karen Brettell

NEW YORK, Feb 15 (Reuters) - Benchmark U.S. Treasury yields

rose to two-and-a-half week highs on Wednesday after data showed

a jump in consumer prices in January, bolstering expectations

that the Federal Reserve is closer to raising interest rates.

The Labor Department said the Consumer Price Index jumped

0.6 percent last month after gaining 0.3 percent in December.

January's increase in the CPI was the largest since February

2013.

“CPI was much higher than expected, both the headline itself

as well as the core number,” said Mary Ann Hurley, vice

president in fixed income trading at D.A. Davidson in Seattle.

In the 12 months through January, the CPI increased 2.5

percent, while the year-on-year core CPI increased to 2.3

percent, both above the Federal Reserve’s 2 percent inflation

target.

Data from the Commerce Department showed retail sales

increased 0.4 percent last month as households bought

electronics and a range of other goods.

Wednesday’s data came after Fed Chair Janet Yellen adopted a

tone that was more hawkish than expected during testimony to

lawmakers in Washington on Tuesday, which sent yields higher.

Yellen will testify before the House Financial Services

Committee on Wednesday.

Benchmark 10-year notes were last down 13/32 in

price to yield 2.52 percent, the highest since Jan. 27.

Two-year note yields fell 2/32 in price to yield

1.26 percent after getting as high as 1.27 percent, the highest

since Dec. 28.

The U.S. central bank will likely need to raise rates at an

upcoming meeting, Yellen said on Tuesday, although she flagged

considerable uncertainty over economic policy under the Trump

administration.

Yellen said delaying rate increases could leave the Fed’s

policymaking committee behind the curve and eventually lead it

to hike rates quickly, which she said could cause a recession.

Traders are now pricing in an 22 percent chance of an

interest rate increase at the Fed’s March meeting, up from 13

percent on Monday, according to the CME Group (Kuala Lumpur: 7018.KL - news) ’s FedWatch Tool.

The chances of a hike by the Fed’s June meeting rose to 73

percent from 65 percent in the same time frame.

(Editing by Jeffrey Benkoe)

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