NEW YORK: US Treasury prices slipped on Monday, with the two-year yield touching a near three-week high in the wake of comments from the head of the New York Federal Reserve, who said the central bank may possibly raise interest rates in September if the economy improves further.
New York Fed President William Dudley's comments concurred with data that showed moderate economic growth with inflation still running below the Fed's 2 percent goal.
"The market sell-off is largely due to Dudley. His whole tone was a bit hawkish which was surprising," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York.
On the open market, benchmark 10-year Treasury notes were down 9/32 in price for a yield of 1.583 percent, up 3 basis points from late on Monday.
The 30-year bond was 14/32 lower in price to yield 2.297 percent, up 2 basis points on the day.
The two-year yield, which is sensitive to traders' views on Fed policy, was up 2 basis points at 0.750 percent after touching a near three-week peak at 0.758 percent, according to Reuters data.
Treasury prices were also under pressure on competition from higher-yielding corporate supply.
Companies have raised nearly $89 billion through selling investment-grade bonds so far this month, putting the sector's issuance on pace for an August record, according to IFR, a unit of Thomson Reuters.
Treasury prices rose in earlier overseas trading due to losses in Asian equity markets as a rise in the yen against the dollar renewed worries about weaker Japanese exports.
The US bond market reversed its gains after Dudley told the Fox Business Network on Tuesday, "I think it's possible" to hike rates at a mid-September policy meeting.
When asked about asset values, Dudley pointed out, "One area that looks stretched to me is the bond market," with the 10-year Treasury yield being "pretty low."
Interest rates futures turned lower on Dudley's comments. They implied traders saw a 55 percent chance the Fed would raise rates at its Dec. 13-14 policy meeting, up from 42 percent on Monday, according to CME Group's FedWatch program.
On the data front, the government said US consumer prices were unchanged in July, resulting in a 12-month rise to 0.8 percent from June's 1.0 percent increase, while housing starts unexpectedly rose 2.1 percent to a five-month high in July.
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