US Treasury yields surged to two-week highs on Thursday after data showed solid economic growth, a day after Federal Reserve Chair Janet Yellen signalled further interest rate hikes are likely.
US homebuilding rebounded sharply in December as a firming economy boosted demand for rental housing, while an unexpected drop in the number of Americans filing for unemployment benefits last week pointed to further tightening in the labor market.
The economy's brightening prospects were underscored by other data showing factory activity in the mid-Atlantic region accelerating to a two-year high this month amid jumps in new orders, employment and inventories.
The data came after Yellen said on Wednesday that it "makes sense" for the Fed to gradually lift interest rates, with the US economy close to full employment and inflation headed toward the US central bank's 2 percent goal.
"It's the fundamentals of Yellen being slightly more hawkish, the data being a little bit better and positioning in the marketplace," said Dan Mulholland, head of Treasuries trading at Credit Agricole in New York.
Benchmark 10-year notes fell 23/32 in price to yield 2.47 percent, up from 2.39 percent late on Wednesday. The yields reached as high as 2.496 percent, the highest since January 3, and have jumped from a low of 2.31 percent on Tuesday. Yellen will speak again on Thursday at 8 pm EST (0100 GMT) on the outlook for the economy and monetary policy. "The market is extremely sensitive to monetary policy given the last FOMC meeting in December, where they indicated possibly three rate hikes in 2017," said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management in New York.
"It showed a Fed that is a little more aggressive in returning to normal monetary policy," Pollack said.
The Treasury Department saw strong demand for a $13 billion sale of 10-year Treasury Inflation-Protected Securities (TIPS), which sold with yields that were more than 3 basis points below where they traded before the auction.,Expectations of greater fiscal stimulus under President-elect Donald Trump has raised expectations that inflation will rise. Data on Wednesday showed US consumer prices increased in December, leading to the largest year-on-year rise in 2-1/2 years. The US will sell $88 billion in two-, five- and seven-year notes next week, the Treasury said on Thursday.
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