June 12, 2018 / 6:30 PM / 2 months ago

TREASURIES-Yields rise before expected Fed rate increase

(Adds auction result, quote, updates prices)

* Fed expected to raise rates on Wednesday

* Consumer prices rose as expected in May

* Treasury sells $14 bln in 30-year bonds

By Karen Brettell

NEW YORK, June 12 (Reuters) - U.S. Treasury yields rose on Tuesday ahead of Wednesday’s widely expected hike in interest rates by the Federal Reserve and after inflation data met economists expectations.

Futures traders are pricing in a 94 percent chance the U.S. central bank will raise rates for a second time this year, according to the CME Group’s FedWatch Tool.

Fed officials are due to update their economic and rate projections on Wednesday and investors will be watching for any changes in their policy statement for clues on further rate moves.

“The market is now focused on the FOMC Rate Decision tomorrow so the appetite for risk is quite low at the moment,” said Tom di Galoma, managing director at Seaport Global Holdings in New York, noting trading volumes were less than 50 percent of normal.

Benchmark 10-year notes fell 1/32 on the day in price to yield 2.961 percent, up from 2.957 percent on Monday.

The yields briefly dipped after data showed the Consumer Price Index increased 0.2 percent last month, as expected. In the 12 months through May, the CPI accelerated 2.8 percent.

The Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, rose 1.8 percent on a year-on-year basis in April and is just below the Fed’s 2 percent target.

“The data were good enough to keep the Fed on track, but not really good enough to do much else,” said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York.

Retail sales data on Thursday is the next major U.S. economic report.

The U.S. Treasury saw fair demand for $14 billion in 30-year bonds on Tuesday, the final sale of $68 billion in new coupon-bearing supply this week. The debt sold at a high yield of 3.100 percent, near where the bonds had traded before the auction.

The Treasury Department also saw solid demand for a $32 billion in three-year notes and $22 billion in 10-year notes on Monday.

The European Central Bank meeting on Thursday is also a key focus after the bank’s chief economist said last week that the ECB will debate whether to end bond purchases later this year.

U.S. President Donald Trump and North Korean leader Kim Jong Un held a largely symbolic summit on Tuesday, and Trump offered an unexpected concession to the North, saying he would halt joint military exercises with South Korea. )

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