TREASURIES-Two-year yields highest since 2011 after strong GDP data

Wed Jul 30, 2014 9:23am EDT

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* Two-year yields highest since May 2011
    * Fed statement in focus, seen as unlikely to surprise
    * Treasury sells $29 bln 7-yr notes, $15 bln 2-year floaters

    By Karen Brettell
    NEW YORK, July 30 (Reuters) - U.S. Treasuries yields rose
Wednesday and two-year note yields surged to their highest since
May 2011 after data showed strong U.S. economic growth in the
second quarter and that the first quarter's contraction wasn't
as steep as earlier estimated. 
    Gross domestic product expanded at a 4.0 percent annual rate
as activity picked up broadly, after shrinking at a revised 2.1
percent pace in the first quarter, the Commerce Department said.
Earlier, first-quarter output was estimated to have shrunk 2.9
percent. 
    The data comes before the Federal Reserve releases its
statement at the conclusion of a two-day policy meeting, though
most analysts don't expect the U.S. central bank to announce any
major changes in policy. 
    The strong GDP data may encourage the Fed to adopt a more
hawkish tone heading into its highly anticipated September
meeting, when many expect it to make more indications about how
soon it will be likely to raise interest rates. 
    "These kinds of numbers should encourage the Fed to be much
more assertive and much more hawkish," said Aaron Kohli, an
interest rate strategist at BNP Paribas in New York. "If we
don't get a change today, then we will be expecting more of a
hawkish stance in September."
    Benchmark 10-year notes fell 12/32 in price to
yield 2.51 percent, up from 2.47 percent before the data was
released.
    Two-year notes yields, which are among the most
sensitive to interest rate policy, increased to 0.58 percent,
the highest since May 2011.  
    U.S. companies hired 218,000 workers in July, short of what
analysts projected and below the previous month's level, a
report by a payrolls processor showed on Wednesday.
 
    Investors are also focused on two debt auctions Wednesday.
    The Treasury will sell $29 billion in seven-year notes, the
final sale of $93 billion in new coupon-bearing debt this week.
It will also auction $15 billion in two-year floating-rate
notes.
    

 (Editing by Bernadette Baum)
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