Bonds News

TREASURIES-Yields rise as Fed's Yellen sees further rate hikes

(Recasts with Yellen comments, adds quotes, data, updates
    * Yellen sees further gradual rate increases likely
    * Consumer prices rise in December
    * Industrial production sees biggest increase in two years

    By Karen Brettell
    NEW YORK, Jan 18 (Reuters) - U.S. Treasury yields rose to
session highs on Wednesday after Federal Reserve Chair Janet
Yellen made comments supporting further, gradual interest rate
    With the U.S. economy close to full employment and inflation
headed toward the Federal Reserve's 2 percent goal, it "makes
sense" for the U.S. central bank to gradually lift interest
rates, Yellen said.
    "Waiting too long to begin moving toward the neutral rate
could risk a nasty surprise down the road - either too much
inflation, financial instability, or both," Yellen said in
remarks prepared for delivery to the Commonwealth Club of
California in San Francisco. 
    Yellen's comments come as Fed officials are viewed as taking
a more hawkish tone on the economy in recent weeks, which has
put pressure on bond prices.
    "They are a little bit more optimistic as of late," said
Gennadiy Goldberg, an interest rate strategist at TD Securities
in New York.
    "The Fed is basically in wait and see mode but they want to
communicate to the market that the moves higher in yields are
coming, and the moves higher in the fed funds rate are coming,
and they don't want the market to be surprised by them in any
way," Goldberg said.
    Benchmark 10-year notes fell 24/32 in price to
yield 2.41 percent, up from 2.33 percent late Tuesday.
    Prices had weakened earlier on Wednesday after data showed
that U.S. consumer prices increased in December as households
paid more for gasoline and rental accommodations, leading to the
largest year-on-year rise in 2-1/2 years.
    Other data showed U.S. industrial production recording its
biggest increase in two years. Rising inflation and stronger
economic growth, if sustained, may push the Federal Reserve to
raise interest rates at a faster pace than currently
    Some of Wednesday's bond weakness was already set before
Wednesday's data, which analysts said was likely driven by
positioning and not moved by any specific news headline.
    Yellen will speak again on Thursday on the outlook for the
economy and monetary policy.
    The Treasury Department on Thursday will also auction $13
billion of 10-year Treasury Inflation-Protected Securities
(TIPS), which will gauge concern about rising inflation as
President-elect Donald Trump prepares to take office.

 (Editing by Chizu Nomiyama)