June 19, 2017 / 1:51 PM / 9 months ago

TREASURIES-Yields rise as Fed's Dudley strikes hawkish tone

    * Fed's Dudley: U.S. economy needs further tightening
    * London terrorist attack boosts bonds overnight
    * Five-year, 30-year yield curve flattest in three months

    By Karen Brettell
    NEW YORK, June 19 (Reuters) - U.S. Treasury yields jumped to
session highs on Monday after New York Federal Reserve President
William Dudley struck a hawkish tone on monetary policy, raising
expectations that the U.S. central bank will continue
    Dudley said that halting the tightening cycle now would
imperil the economy, adding that with unemployment at 4.3
percent and inflation at about 1.5 percent, "this is actually a
pretty good place to be.”             
    “He said that it would be a mistake for the Fed to stop
tightening now,” said Mary Ann Hurley, vice president in fixed
income trading at D.A. Davidson in Seattle. 
    “Generally Dudley has been one of the doves on the
committee, so this would signal that the tightening agenda
continues,” Hurley said.
    Benchmark 10-year note yields jumped to as high as 2.18
percent on Dudley’s comments, up from a low of 2.14 percent
    Prices had firmed overnight on safety buying after a van hit
worshippers near a London mosque, adding to concerns about
rising attacks.             
    The 10-year notes were last down 4/32 in price to yield 2.17
percent            .
    The yield curve between five-year notes and 30-year bonds
               flattened to a three-month low of 100 basis
points, as hawkish Fed policy weighed on intermediate-dated
notes but long bonds were supported by tepid inflation. 
    With no major economic releases or supply this week to sway
market direction most investors were continuing to evaluate Fed
    Yields have risen from seven-month lows since the Fed on
Wednesday increased interest rates for the second time in three
months and said it would begin cutting its holdings of bonds and
other securities this year.             
    Bond weakness has been capped, however, by concerns about
weak economic indicators.
    Data released before the Fed meeting on Wednesday showed
U.S. consumer prices unexpectedly fell in May and retail sales
recorded their biggest drop in 16 months, suggesting a softening
in domestic demand.             

 (Editing by Meredith Mazzilli)
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