June 19, 2017 / 6:32 PM / a year ago

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

 (Adds quote, Fed speakers; Updates prices)
    * 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 on
Monday after New York Federal Reserve President William Dudley
struck a hawkish tone on monetary policy, bolstering
expectations that the U.S. central bank will continue to boost
interest rates.
    Dudley said halting the policy-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.
    The 10-year notes             fell 9/32 in price to yield
2.19 percent, up from 2.16 percent late on Friday, and up from
an overnight low of 2.14 percent.
    Prices gained overnight on safety buying after a man plowed
his van into worshippers near a London mosque, injuring 10
people and compounding worries after a series of attacks in
recent months in Britain, Europe and the United States.
    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 limited, 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.             
    "Yellen set aside any immediate concerns about the downtick
in core inflation," said Lou Brien, a market strategist at DRW
Trading in Chicago. "For the time being her stance is very
supportive of the long-end."
    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.
    Chicago Fed President Charles Evans is due to speak later on
Monday at am event in New York and Fed Vice Chair Stanley
Fischer will speak early on Tuesday at a macroprudential
conference in Amsterdam.

 (Editing by Meredith Mazzilli and Bernadette Baum)
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