February 5, 2018 / 7:40 PM / in a year

TREASURIES-Selloff pauses after yields hit four-year highs

 (Adds quotes, data; Updates prices)
    * Ten-year yields highest since Jan 2014
    * Fed seen more aggressive on rate hikes
    * Treasury to sell $66 billion notes, bonds this week

    By Karen Brettell
    NEW YORK, Feb 5 (Reuters) - U.S. Treasury yields pulled back
from almost four-year highs reached overnight on Monday as
investors weighed whether a dramatic week-long selloff had run
its course, after improving economic data raised expectations of
further rate hikes this year.
    Benchmark 10-year note yields             surged to 2.885
percent overnight, the highest since January 2014, following
data Friday that showed hourly wages rose in January.             
    They fell back to 2.819 percent in New York afternoon
    Signs that inflation is firming have raised some traders'
expectations that the Federal Reserve may hike interest rates
four times this year. Fed officials have indicated that three
rate hikes are likely.
    Many investors are reluctant to stand in the way of the
selloff, which has sent 10-year yields up from a low of 2.654
percent last Monday, until they see signs of stabilization.
    “Even if you think it’s gone too far, or even if you think
we’ve sold off a little more than probably warranted at this
point, you don’t really have those buyers that are willing to
step in and stop it until we see some signs of slowing,” said
Blake Gwinn, an interest rate strategist at NatWest Markets in
Stamford, Connecticut.
    The selloff has raised some fears that the 30-year bond bull
run may have ended, though until 10-year yields have a prolonged
stint over 3 percent some analysts see that belief as premature.
    “It’s not clear to me that over a 10- or 30-year horizon
you’re really getting inflation and gross domestic product at a
level that should make you comfortable with yields over 3
percent," said Aaron Kohli, an interest rate strategist at BMO
Capital Markets in New York.
    "Central bank actions can certainly ignite a move based on
positioning, but that doesn’t mean it’s persistent,” Kohli
    Investors are also nervous about bond yields as the Treasury
is due to significantly increase issuance this year to make up
for declining Fed purchases.
    The Treasury will sell $66 billion in notes and bonds this
week, including $26 billion in three-year notes on Tuesday, $24
billion in 10-year notes on Wednesday and $16 billion in 30-year
bonds on Thursday.             
    Data on Monday showed that U.S. services sector activity
raced to a near 12-1/2-year high in January, buoyed by robust
growth in new orders.             

 (Editing by Andrea Ricci)
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