NEW YORK: Short-dated US Treasury yields rose to their highest in nearly two months on Wednesday after the minutes of the Federal Reserve's April meeting showed most policymakers said an interest rate rise may be appropriate at its meeting in June.
Yields had risen this week after data showed US inflation rising by the most in three years in April as well as higher industrial output and housing starts.
CME fed fund futures showed that the probability of a June rate increase by the Fed rose to 34 percent after the release of the FOMC minutes on Wednesday from 19 percent earlier in the day, 15 percent on Tuesday, and less than 1.0 percent a month ago, according to CME group's FedWatch.
"The big headline is that the door for June is open," said Collin Martin, a fixed income strategist at Charles Schwab in New York. "Most Fed officials saw June as likely if the economy warranted, so it seems like there is a consensus that if the economic data continues to move in the right direction that they could hike."
Fed officials earlier said they expected to raise US overnight interest rates at least twice this year after raising rates for the first time in a decade last December. CME fed fund futures prices however have shown for most of this year that investors saw less than a 50-50 chance of more than one rate hike in 2016.
The fed fund futures contract price dropped two points after the release of the FOMC minutes on Wedesday, the largest one-day drop since late February.
"It seems like the market was in 'show-me' mode" when it comes to the Fed's interest rate expectations, Martin said.
"The action in short-term Treasuries right now is showing us that the market is starting to believe it a little bit more."
The yield for two-year Treasury notes rose to as much as 0.912 percent, the highest since March 16. Yields on three-year notes rose to 1.085, the highest since March 23. Benchmark 10-year notes fell one point in price to yield 1.878 percent, the highest since April 27.
Thirty-year bonds dropped nearly two points in price to yield 2.679 percent, the highest since May 4.
CME group's FedWatch now shows investors see a 79 percent chance of at least one rate increase this year and a nearly 40 percent chance of two hikes.