December 17, 2014 / 9:07 PM / 3 years ago

TREASURIES-U.S. bond yields rise as Fed shades towards rate hike

* FOMC stresses patience in normalizing interest rates
    * Yellen sees boost for U.S. from oil drop, downplays risk
    * Oil fall causes biggest monthly CPI drop in six years
    * TIPS inflation breakeven rates rise with U.S. oil futures

 (Updates market action after FOMC statement)
    By Richard Leong
    NEW YORK, Dec 17 (Reuters) - U.S. Treasuries yields rose on
Wednesday after the U.S. Federal Reserve tweaked its message on
interest rates, saying that while it was in no hurry to raise
them, it will monitor data on growth and inflation to decide on
the timing of such a move.
    Trading in the bond market swung wildly after the release of
the latest policy statement from the Federal Open Market
Committee after its two-day meeting. 
    "Based on its current assessment, the committee judges that
it can be patient in beginning to normalize the stance of
monetary policy," the FOMC said.
    Significantly, it viewed that statement as "consistent" with
its previous language that it would be a "considerable time"
before it hiked rates. 
    Some traders had bet that the steep decline in oil prices
and overseas economic woes would force the Fed to leave
short-term rates near zero at least into late 2015, which is
later than the mid-2015 target that some Fed policymakers had
suggested.
     But Fed Chair Janet Yellen played down the drop in oil
prices and possible market contagion at a press conference after
the FOMC meeting. She said the huge drop in energy costs would
ultimately be a "net positive" for the U.S. economy since it
will help consumer spending.
    Oil's retreat has caused stress in stock markets and some
credit sectors as well as for energy exporters, including
Russia, whose currency has seen a near free-fall.    
    An early result of the steep decline in energy costs was the
unexpectedly big drop in the U.S. consumer price index in
November. The CPI's 0.3 percent fall last month was the biggest
in nearly six years. 
    "Today's CPI report is a reminder on how low inflation has
fallen," said Mike Lorizio, head of Treasuries trading at John
Hancock Asset Management in Boston.
  
    After Yellen's press conference, benchmark 10-year note
yield was 2.136 percent, up 6.5 basis points from
late on Tuesday, while 30-year bond yield rose 4.1
basis points at 2.743 percent.
    Short-to-medium Treasuries yields rose 4 to 7 basis points.
    In the oil market, January U.S. crude futures ended
higher for a second day, up 54 cents at $56.47 a barrel after
touching a 5-1/2-year low of $53.60 on Tuesday. 
    The rebound in crude prices helped Treasury
Inflation-Protected Securities (TIPS) after the
weaker-than-expected CPI data had weighed on the sector. 
    The five-year TIPS inflation break-even rate
, a gauge of investors' five-year inflation
outlook, was up 1 basis point at 1.16 percent after it fell on
Tuesday to 1.08 percent, which was the lowest since September
2010, Reuters data showed.

 (Editing by Peter Galloway)

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