* Traders digest comments by Fed's Yellen
* U.S. initial jobless claims rose 5,000 last week
* U.S. home resales fell 0.4 pct in February
(Adds analyst comments, Fed bond purchases; updates prices)
By Sam Forgione
NEW YORK, March 20 Yields on U.S. 2-year
Treasuries hovered near their highest in six months on Thursday,
a day after Federal Reserve Chair Janet Yellen signaled the
central bank might raise U.S. interest rates sooner than
Speaking at a press conference on Wednesday after the Fed's
two-day policy meeting, Yellen said the Fed could raise rates
six months after its current bond-buying program ends, which
spurred selling on fears of an earlier-than-expected move away
from the bank's near-zero rate policy.
Yellen said the Fed would probably end its massive asset
purchase program this fall. The comments forced traders to
reconsider the notion the U.S. central bank would hold its key
rate near zero at least into the second half of 2015.
"The front end of the yield curve is rising on expectations
of a higher fed funds rate," said Robert Tipp, chief investment
strategist at Prudential Fixed Income in Newark. The Fed has
kept the fed funds rate, its benchmark short-term borrowing
rate, near zero since late 2008 to help the economy recover from
Federal funds futures, meanwhile, fell to their lowest level
The April 2015 fed funds contract fell 1.5 basis
points to 99.735, suggesting traders see a 51 percent chance the
Fed will raise rates at its April 2015 meeting, up from 47
percent on Wednesday and nearly 34 percent a month ago,
according to CME Group's FedWatch.
U.S. benchmark 10-year Treasury notes last
yielded 2.78 percent, up slightly from 2.77 percent late
The yield on the 2-year U.S. Treasury note was
last at 0.4319 percent, up slightly from late Wednesday, when it
was at 0.424 percent. The yield rose as high as 0.448 percent on
Wednesday, its highest level since September. Bond yields move
inversely to their prices.
The yield on the 5-year U.S. Treasury note was
last at 1.71 percent, up slightly from 1.7 percent late
Wednesday and also hovering at Wednesday's high levels. The
yield had surged 16 basis points on Wednesday to 1.712 percent,
its largest one-day rise since July 2013.
While short-dated yields rose, those on long bonds were
steady after investors anticipated that an earlier-than-expected
rise in U.S. interest rates would slow inflation over the longer
The 30-year Treasury bond was last up 2/32 in
price to yield 3.667 percent, roughly unchanged from a yield of
3.67 percent late Wednesday.
Traders said Yellen's comments overshadowed U.S. economic
data released on Thursday. The Philadelphia Federal Reserve Bank
said its business activity index rose to 9.0 in March from -6.3
in February, and showed better-than-expected growth in factory
activity in the U.S. Mid-Atlantic region.
The Labor Department, meanwhile, said initial claims for
state unemployment benefits increased by 5,000 last week, which
was lower than expected and pointed to some underlying strength
in the labor market.
Data on U.S. existing home sales also had little impact on
Treasury debt prices. The National Association of Realtors said
U.S. home resales dropped 0.4 percent in February to an annual
rate of 4.60 million units, a 19-month low, in line with
Yellen's comments also hurt demand at the Treasury's auction
of $13 billion in 10-year Treasury Inflation-Protected
Securities on Thursday. Direct bidders such as institutional
investors bought 7.93 percent of the supply, marking their
smallest share since last September.
"Given Yellen's comments yesterday and the overall tendency
for the markets to sell, the auction was clearly affected," said
Jeffrey Young, U.S. interest rate strategist at Nomura
Securities International in New York.
The Fed bought $2.63 billion in Treasuries maturing between
May 2022 and November 2023, which had little effect on
On Wall Street, all three major stock indexes rose on the
stronger-than-expected U.S. manufacturing and jobs data.
(Reporting by Sam Forgione, editing by Chris Reese and G