TREASURIES-U.S. yields rise as CPI data revives rate-hike view for December

NEW YORK, Sept 14 (Reuters) - U.S. Treasury yields rose on Wednesday, with the two-year yield hitting a seven-week peak as a stronger-than-forecast increase in domestic consumer prices rekindled bets the Federal Reserve would raise interest rates for a third time in 2017. Longer-dated yields rose less than their short-dated counterparts, reflecting the view that Fed's pace of hikes on short-term rates would be faster than underlying inflation trend. "The data help the case for following up the start of Fed balance sheet normalization next week with another rate hike in December, although there will be three more CPI reports before the December decision is made," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. The consumer price index, the government's broadest inflation gauge, rose 0.4 percent in August, faster than the 0.3 percent increase forecast among analysts polled by Reuters. That lifted the CPI's year-over-year increase to 1.9 percent from 1.7 percent in July. But the so-called core CPI, which excludes volatile energy and food prices, rose 1.7 percent on a 12-month basis and remained stuck below the Fed's 2 percent goal for underlying inflation. Still, the latest CPI data revived expectations the U.S. central bank may consider hiking interest rates at its Dec. 12-13 meeting if subsequent data support the case that inflation is accelerating. Interest rates futures implied traders saw more than a 50 percent chance of rate increase in December, the highest since July, based on data from CME Group's FedWatch program. . Fed policymakers will meet on Sept. 19-20 and are expected to leave rates unchanged and announce their plan to reduce the central bank's $4.2 trillion holdings of Treasuries and mortgage-backed securities. At 9:50 a.m. (1350 GMT), the yield on two-year Treasury notes, which is sensitive to traders' view on Fed policy, was up 2.5 basis points at 1.380 percent. It touched 1.388 percent earlier on Thursday, which was its highest since July 26, Reuters data showed. The benchmark 10-year yield hit a three-week peak at 2.225 percent before retreating to 2.204 percent, up 1 basis point from late on Wednesday. The yield spread between five-year and 30-year Treasuries shrank to 99 basis points, the tightest in about 2-1/2 weeks, according to Tradeweb. September 14 Thursday 9:50AM New York / 1350 GMT Price

US T BONDS DEC7 154-30/32 0-4/32 10YR TNotes DEC7 126-100/256 -0-16/25


Price Current Net Yield % Change


Three-month bills 1.0275 1.0445 0.000 Six-month bills 1.145 1.1676 0.003 Two-year note 99-194/256 1.3757 0.021 Three-year note 99-156/256 1.5087 0.024 Five-year note 99-56/256 1.7903 0.016 Seven-year note 99-20/256 2.0176 0.008 10-year note 100-120/256 2.197 0.002 30-year bond 99-76/256 2.7847 -0.010


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 24.50 0.75


U.S. 3-year dollar swap 20.75 0.50


U.S. 5-year dollar swap 7.75 0.50


U.S. 10-year dollar swap -3.75 0.75


U.S. 30-year dollar swap -33.25 1.00


(Reporting by Richard Leong; Editing by Meredith Mazzilli)