US bond yields rise

US Treasuries yields rose on Thursday as Wall Street shares gained a day after the US Federal Reserve signalled it might raise interest rates in 2015 but would do so at a gradual pace. Most US government yields touched one-week highs as some traders exited positions that were betting shorter-term rates would rise faster than longer-term rates.
Traders were expecting the US central bank would raise short-term rates even as domestic growth remains subpar and inflation falls short of its 2 percent goal next year. On Wednesday, the Fed said it would be "patient" on timing for a rate hike, depending on domestic growth and inflation, both of which have been running below average. The dramatic drop in oil prices in recent weeks and economic weakness in Europe and Japan had reduced traders' expectations that the Fed in 2015 would boost rates from the near-zero levels adopted six years ago.
Still, evidence of a strengthening labour market and Fed forecasts that inflation would pick up have kept the start of rate normalisation on track for sometime in 2015, according to the latest Fed statement. On Thursday, the US Labour Department said first-time filings for state jobless benefits declined by 6,000 to 289,000 for the week ended December 13.
Some other data indicated a less robust outlook for the economy. The Philadelphia Federal Reserve said its index on business conditions in the Mid-Atlantic region fell in December from the November reading, which was the highest since December 1993. On balance, however, Thursday's data supported the view that there might be enough momentum for the US economy to expand at a moderate 2.5-3.0 percent pace in 2015 without near-zero interest rates, analysts said. Major US stock indexes rose with the Standard & Poor's 500 last up 1.8 percent.
The benchmark 10-year note yield was 2.209 percent, up 6 basis points from late on Wednesday and on track for its largest two-day jump since June. The yield spreads between short- and long-dated Treasuries grew as traders closed out curve flattener trades. Most analysts forecast these trades will come back in vogue. The gap between two-year and 10-year yields widened to 1.57 percentage points from 1.54 points on Wednesday. It reached 1.51 points, its narrowest in 19 months, on Tuesday.
Despite a renewed drop in oil prices, Treasury inflation-protected securities showed some stabilisation. They have been hammered by the steep drop in crude prices from their peak in June. The Treasury Department on Thursday paid investors, which bought a record 64.81 percent of $16 billion in five-year TIPS offered, a yield of 0.395 percent. This was first five-year TIPS sale that fetched a positive yield since April 2010.