NEW YORK (Reuters) -
Treasury yields approached six-month highs following a jump in U.S. inflation indicators that have economists anticipating a possible interest rate hike in the summer.
"A Fed move in late summer is a high probability bet right now," Cary Leahey, senior U.S. economist at Deutsche Bank Securities told Reuters.
At about 4 p.m. EST, the benchmark 10-year note shed 4/32 of a point to 97-2/32 to yield 4.37 percent, up from 4.35 percent late Tuesday, and the 30-year bond fell 3/32 of a point to 103 to yield 5.17 percent, up from 5.15 percent late in the previous session.
The two-year note dropped 5/32 of a point to 98-28/32 to yield 2.09 percent and the five-year note lost 6/32 to 98-20/32 to yield 3.42 percent.
Bond prices and yields move in opposite directions.
The consumer price index firmed 0.5 percent in March, topping forecasts of a 0.3 percent gain, though its annual rate of growth held at 1.7 percent.
More alarmingly for the bond market, the core rate, which excludes food and energy, rose 0.4 percent when analysts had looked for only a 0.2 percent gain. That took the annual rate to 1.6 percent from 1.2 percent and suggested the risks for inflation were now decidedly to the upside.
"The Fed should respond with a rate increase earlier than the previous timetable had suggested," Jeoff Hall, chief North American economist at Thomson IFR told Reuters. "Now we're looking at perhaps a 1-3/4 percent funds rate by the end of this year."
Inflation is a negative for bond investors as its can erode the value of the principal amount while prices climb.
In addition, the U.S. trade gap narrowed to $42.1 billion in February from the record $43.5 billion in January and economists' estimates of $42.5 billion.
"The trade balance was narrower than expected, so that should push most (U.S.) GDP forecasts toward 5 percent in the first quarter," Tim Mazanec, senior currency strategist with Investors Bank & Trust in Boston, told Reuters.
"The dollar is stronger, mostly on the back of increased rate hike expectations," he said.
The euro bought $1.1967 compared to $1.1946 the previous day, and the dollar bought ¥108.75, inching up from ¥106.63 the day earlier.
-- Reuters contributed to this story.
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