TREASURIES-Prices drop after Yellen sees rate hike more likely
(Recast with market move, adds Fischer comments, updates
prices)
* Yellen seen more hawkish, but noncommittal
* Two-year, 30-year yield curve flattest since 2007
By Karen Brettell
NEW YORK, Aug 26 (Reuters) - U.S (Other OTC: UBGXF - news) . Treasuries prices fell on
Friday as investors evaluated whether the Federal Reserve is
likely to raise interest rates at its September meeting,
following hawkish but still noncommittal comments by Fed Chair
Janet Yellen.
Speaking at a three-day international gathering of central
bankers in Jackson Hole, Wyoming, Yellen said the "U.S. economy
was nearing the Federal Reserve's statutory goals of maximum
employment and price stability."
She (Munich: SOQ.MU - news) did not indicate when the U.S. central bank might raise
rates.
Yellen's comments "lean slightly hawkish, but is it a
commitment? No, it's just maintaining optionality," said
Gennadiy Goldberg, an interest rate strategist at TD Securities
in New York.
Benchmark 10-year notes were last down 6/32 in
price to yield 1.60 percent, up from 1.56 percent before the
comments.
Yields initially rose to 1.60 percent on Yellen's more
hawkish tone, before moving in the opposite direction and
dropping as low as 1.53 percent.
Bonds then resumed weakening after Fed Vice Chair Stanley
Fischer said that Yellen's speech was consistent with
expectations for possible interest rate hikes this year.
The yield curve between two-year notes and 30-year bonds
flattened to 142 basis points, the flattest since
2007.
Investors were searching for new signals over whether an
increase is on the table at the Fed's September meeting after
other Fed officials including New York Fed President William
Dudley said it was a possibility.
"September is not probable, but it's certainly possible,"
said Guy LeBas, chief fixed income strategist at Janney
Montgomery Scott in Philadelphia.
"Right now, the market has a September 25 basis point hike
priced in with about one-in-four probability, and I think in
light of those comments the true number should be closer to
fifty-fifty, and December should be north of 50 percent," LeBas
said.
A hike at the Fed's December meeting is seen as most likely
if the U.S. central bank raises rates this year.
Bonds had been unchanged earlier on Friday after data showed
that U.S. economic growth was a bit more sluggish than initially
thought in the second quarter as businesses aggressively ran
down inventories of unsold goods, offsetting a spurt in consumer
spending.
Gross domestic product expanded at a 1.1 percent annual
rate, the Commerce Department said on Friday in its second
estimate of GDP. That was slightly down from the 1.2 percent
rate reported last month.
(Editing by Chizu Nomiyama and Nick Zieminski)