* Fed expected to hike interest rates on Wednesday
* New Fed economic forecasts awaited
* 10-year yields hit session high of 2.598 percent
* Yields remain below highs hit on Friday
* Corporate supply pressures yields higher
By Sam Forgione
NEW YORK, March 13 U.S. Treasury yields edged
higher on Monday in anticipation of a Federal Reserve interest
rate increase on Wednesday, nervousness that the central bank
could indicate a more aggressive pace of future rate hikes, and
new corporate bond supply.
Interest rates futures implied traders saw an 88.6 percent
chance the Fed would announce it was increasing rates by a
quarter percentage point at the end of its two-day policy
meeting, CME Group's FedWatch program showed. Those expectations
were unchanged from Friday.
While yields were largely reflecting expectations of a rate
increase, some residual bets on such a move and worries that the
Fed's new economic forecasts will signal a more aggressive pace
of monetary tightening pressured yields higher, analysts said.
"The general trajectory for bonds is for higher yields,"
said Kim Rupert, managing director of global fixed income
analysis at Action Economics in San Francisco. "You have the
potential for the dot plots to suggest a more aggressive
stance," she said in reference to the Fed forecasts.
JPMorgan economist Michael Feroli said on Friday that the
median number of rate increases in 2017 expected by Fed
policymakers may grow to four, one more than the median view of
three hikes in their December projections.
Prices for benchmark 10-year Treasuries were
last down 2/32 to yield 2.589 percent, from a yield of 2.582
percent late on Friday. The 10-year Treasury yield hit a session
high of 2.598 percent on Monday. U.S. 30-year Treasuries prices
were down 3/32 to yield 3.175 percent, from a yield
of 3.170 percent.
Two-year yields, which are considered the most
vulnerable to Fed policy, were last at 1.364 percent. That was
up slightly from 1.359 percent late on Friday.
Yields on Treasuries maturing between seven and 30 years hit
their highest levels since mid-December on Friday, with 10-year
yields hitting 2.624 percent. Five-year yields hit their highest
level since April 2011, while three-year yields touched their
highest level since April 2010 and two-year yields reached their
highest level since June 2009.
The tilt higher in yields was slight since traders were
awaiting the Fed policy statement, analysts said.
A succession of corporate bond issuance this week likely
pressured yields slightly higher as well, said Charles Comiskey,
head of Treasuries trading at Bank of Nova Scotia in New York.
Rupert of Action Economics said the spate of new scheduled
supply was likely a result of companies looking to issue at
lower interest rates before Wednesday's expected rate hike.
March 13 Monday 10:33AM New York / 1433 GMT
US T BONDS JUN7 146-21/32 -0-6/32
10YR TNotes JUN7 122-244/256 -0-16/25
Price Current Net
Yield % Change
Three-month bills 0.7525 0.7643 0.017
Six-month bills 0.8925 0.9089 0.018
Two-year note 99-136/256 1.3679 0.009
Three-year note 99-222/256 1.6706 0.006
Five-year note 98-230/256 2.1099 0.005
Seven-year note 98-52/256 2.4068 0.008
10-year note 97-8/256 2.591 0.009
30-year bond 96-148/256 3.178 0.008
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 33.25 -0.25
U.S. 3-year dollar swap 25.50 -0.25
U.S. 5-year dollar swap 9.50 -0.50
U.S. 10-year dollar swap -3.75 -1.00
U.S. 30-year dollar swap -39.00 -0.75
(Reporting by Sam Forgione; Editing by Paul Simao)