Yields end day higher as Yellen sees rate hikes

NEW YORK: US Treasuries reversed some price declines but still ended weaker on Monday after Federal Reserve Chair Janet Yellen said a strengthening economy means that interest rate increases are likely on the way, while also acknowledging Friday's disappointing employment report.

"Positive economic forces have outweighed the negative" for the United States now that risks from earlier this year have diminished, Yellen said.

In her public comments, the last by any US central banker before next week's meeting on rates, Yellen said last month's jobs report was disappointing and bears watching, but she warned against attaching too much significance to it on its own.

"She was probably not as dovish as feared," said Tom Porcelli, chief US economist at RBC Capital Markets in New York. "She was very balanced."

Benchmark 10-year notes ended down 6/32 in price to yield 1.723 percent, up from a two-month low of 1.697 percent on Friday.

Yields rose before Yellen's speech as stock and oil prices gained, reflecting stronger risk sentiment.

Yellen did not repeat comments made during a question and answer session in May that rate increases would be appropriate in the coming months, or give any other indications of timing.

"The mixed message today suggests that Yellen is disinclined to move forward and take the next step in the normalization process in the near-term, but it also does not shut the door on the prospects for a July rate either," said Thomas Simons, a money market economist at Jefferies in New York.

Traders have pushed back rate-hike expectations to September, at the earliest, after Friday's jobs report showed that employers added only 38,000 jobs in May, the smallest gain since September 2010.

Hawkish speeches by numerous Fed officials before the report had led investors to conclude that a hike at the Fed's June or July meeting was possible.

St. Louis Fed President James Bullard, who is a voting member this year, and Federal Reserve Bank of Atlanta President Dennis Lockhart, a non-voting member, on Monday all but dismissed the possibility of an interest-rate increase next week but said a rate hike soon after will be possible.

Boston Fed President Eric Rosengren, a non-voting member, said earlier on Monday that last Friday's poor employment report could give the Fed pause, while also noting that the US economy's rebound from a weak winter has moved the Fed closer to raising rates.