July 23, 2018 / 4:42 PM / 3 months ago

TREASURIES-Yields rise to five-week highs on more hawkish central banks

(Adds quote, updates prices)

* Yield curve steepens as Trump criticizes Fed rate hikes

* Bank of Japan seen reducing accommodation

* Treasury to sell $101 bln coupon-bearing supply this week

By Karen Brettell

NEW YORK, July 23 (Reuters) - Benchmark 10-year U.S. Treasury yields rose to their highest levels in five weeks on Monday as the Federal Reserve was seen as likely to continue raising interest rates despite criticism from President Donald Trump.

Indications that the Bank of Japan may scale back its monetary stimulus more quickly than expected also weighed on bonds globally.

A White House official told CNBC on Friday that Trump is concerned the U.S. central bank will raise interest rates another two times this year.

Trump had earlier questioned the Fed’s expected pace of hikes in posts on Twitter, saying it takes away from the United States’ “big competitive edge” and could hurt the U.S. economy.

Reuters also reported on Friday that the Japanese central bank was discussing modifying its easing program. That added to concerns about reduced demand for government debt as central banks reduce their huge bond-buying programs.

“Trump’s headlines definitely had people adjust positions but also the story about (Japanese government bonds) and potential tweaks by the BOJ has Japanese bonds on the move,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

“It’s a continuation of a trade; global bonds in general are trading heavy today,” Lederer said.

Benchmark 10-year notes fell 17/32 in price to yield 2.954 percent, the highest since June 14 and up from 2.893 percent on Friday. The yield curve between two-year and 10-year notes rose to 33 basis points, its steepest since June 29.

The Federal Reserve is seen as likely to raise rates for the third time this year in September and could be more compelled to continue rate hikes to show its independence as a result of the criticism.

“Is this a situation where one would expect the Fed to give in to presidential pressure or would this simply embolden the Fed’s plans to move forward? I would say it’s probably the latter,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.

This week’s economic focus will be Friday’s gross domestic product reading for the second quarter, which will be evaluated for indications on how last year’s tax overhaul and recent trade tariffs are influencing growth.

The Treasury Department will sell $101 billion in coupon-bearing supply this week, including $35 billion in two-year notes on Tuesday, $36 billion in five-year notes on Wednesday and $30 billion in seven-year notes on Thursday. (Reporting by Karen Brettell; Editing by Dan Grebler) )

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