September 20, 2017 / 8:12 PM / a year ago

TREASURIES-U.S. yields jump as Fed keeps December rate hike alive

 (Adds quotes, details; updates prices)
    * Fed signals another rate hike likely this year
    * Ten-year Treasury yields highest since Aug. 8
    * Yield curve flattens as intermediates underperform

    By Karen Brettell
    NEW YORK, Sept 20 (Reuters) - Benchmark U.S. Treasury yields
jumped to their highest levels in six weeks on Wednesday after
the Federal Reserve’s statement from its policy meeting was
interpreted as keeping a December interest rate hike on the
    New economic projections released after the Fed's two-day
policy meeting showed 11 of 16 officials see the "appropriate"
level for the federal funds rate, the central bank's benchmark
interest rate, to be in a range between 1.25 percent and 1.50
percent by the end of 2017, one-quarter of a point above the
current level.             
    The Fed’s economic projections for 2017 were unchanged, said
Charlie Ripley, investment strategist at Allianz Investment
Management in Minneapolis.
    “That gives us a little bit more confidence that there is
probably going to be a third rate hike coming in December,”
Ripley said.
    Benchmark 10-year notes             fell 9/32 in price to
yield 2.27 percent, after yields got as far as 2.29 percent, the
highest since Aug. 8.
    Some traders and investors had thought that the Fed may
strike a more dovish tone given the potential economic impact of
recent severe hurricanes and still sluggish inflation. 
    The U.S. central bank was also seen as potentially slowing
its rate hike path to give the market time to absorb reductions
in its balance sheet.
    The Fed said it would begin in October to reduce its
approximately $4.2 trillion in holdings of U.S. Treasury bonds
and mortgage-backed securities, as expected, by initially
cutting up to $10 billion each month from the amount of maturing
securities it reinvests.
    “There is no real dovish rhetoric anywhere that would have
you thinking anything but rate hikes or tightening over the next
year or so,” said Gennadiy Goldberg, an interest rate strategist
at TD Securities in New York. 
    “I think that hawkish setup was not something the market
expected, they expected a little more lip service paid to the
uncertainties,” Goldberg added. 
    Interest rate futures traders are pricing in a 68 percent
chance of a December rate hike, after rising to 72 percent
immediately after the statement, according to the CME Group’s
FedWatch Tool.

 (Additional reporting by Saqib Ahmed; Editing by Cynthia
Osterman and Chizu Nomiyama)
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