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TREASURIES-Prices ease as Fed forecasts lift short-maturity yields
September 18, 2014 / 7:22 PM / 3 years ago

TREASURIES-Prices ease as Fed forecasts lift short-maturity yields

* Shorter maturity yields touch highs

* Fed rate forecasts spur selling (Adds late prices, quote)

By Michael Connor

NEW YORK, Sept 18 (Reuters) - U.S. Treasury debt prices turned down on Thursday, with investors driving some shorter-maturity yields to highs not seen since 2011 a day after the Federal Reserve raised forecasts for some interest rates.

Yields on two-year notes touched a high of 0.597 percent before settling back to 0.5686 percent on a 1/32 price decline. That level was last seen in May 2011.

Three-year and five-year yields were also up. Prices for three-year notes were off 3/32, taking their yield to 1.104 percent, a level last touched during April 2011.

Five-year notes were off 7/32 in price and yielding 1.851 percent after touching 1.874 percent.

“The Fed worked so hard this week to not scare the market about rate increases, it ended up doing precisely what it tried to avoid,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis.

On Wednesday, after a two-day meeting, Fed policymakers issued a statement that indicated the central bank had not changed its view of when it might raise its benchmark interest rate from near zero, soothing investor fears tightening might come earlier than the markets have been expecting.

But Fed economic forecasts, released with the statement, suggested that once rates start rising, they will rise faster than the central bank had projected in its last outlook in June.

“The concrete message yesterday was a faster rate forecast from the Fed members themselves,” Vogel said. “And the fact they did that with a flat to down economic forecast reduces the willingness of traders to believe the Fed when it says it is data dependent.”

Yields on benchmark 10-year Treasury notes were up to 2.63 percent on a price decline of 8/32 after briefly touching a session high of 2.642 percent on mixed economic data on America’s labor and housing markets.

Prices of 30-year Treasuries mostly traded near flat and were last up 2/32 and yielding 3.358 percent.

Early on Thursday, a government report showed the number of Americans filing new claims for unemployment benefits fell more than expected last week, suggesting a sharp slowdown in job growth last month was probably an aberration.

Other data on Thursday showed housing starts declined in August, while upward revisions for groundbreaking in July offered hope the housing market was gradually continuing to improve. (Reporting by Michael Connor in New York; Editing by Andrea Ricci)

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