US Treasuries prices fell on Friday, with most yields posting their biggest weekly rise in nine weeks as the Federal Reserve's No 2 official suggested a September rate increase remained a possibility in the wake of global market turbulence this week. "We're still watching how it unfolds. So I wouldn't want to go ahead and decide right now what the case is: more compelling, less compelling, et cetera," Fed Vice Chairman Stanley Fischer told CNBC television on Friday when asked about the prospect of a September interest rate hike.
Fischer made his remarks a day before he is due to give a speech on inflation at an annual central bankers' conference in Jackson Hole, Wyoming. "Keeping the door open for September is significant. Is it a lock? No," said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York. Fischer's view made the bond market erase earlier gains tied to losses on Wall Street, and prompted some fund managers to halt purchases of longer-dated Treasuries to meet with expected month-end changes to their portfolio benchmarks. Other top Fed officials also expressed their views on whether the US central bank should raise rates.
Overnight indexed swap rates implied traders now see a 37 percent chance the Fed would raise rates in September and a 78 percent chance for a December rate increase. Early this week, the rates implied chances of a September hike at about 22 percent and a December increase of 50 percent. Benchmark 10-year Treasuries notes were down 4/32 in price to yield 2.182 percent, up over 1 basis point from Thursday, while two-year notes were down 2/32 in price, yielding 0.720 percent, up over 3 basis points. The 30-year bond slipped 5/32 in price with a yield of 2.910 percent, down less than 1 basis point as traders bet long-dated issues will fare better than shorter-dated ones if the Fed raises rates soon.
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