TREASURIES-Yields at two-week highs with focus on Fed taper timeline

       By Karen Brettell
    NEW YORK, Aug 26 (Reuters) - U.S. Treasury yields rose to
two-week highs on Thursday after St. Louis Federal Reserve
President James Bullard called for the U.S. central bank to
begin paring bond purchases soon, and before Fed Chair Jerome
Powell is due to speak on Friday.
    The Fed is "coalescing" around a plan to begin a taper,
Bullard said, adding that "we don't need the asset purchases at
this point." He also said he is skeptical that inflation will
moderate next year.
    Minutes from the Fed's July meeting released last week
showed that the bulk of the bank's policy-setting committee
expect the Fed will start trimming its bond-buying program later
this year, though consumer sentiment and economic data have
weakened since the July meeting.
    Powell may hesitate to offer any new insight on a timeline
for a taper on Friday as he waits to see how the spread of Delta
variant coronavirus cases affects the economic outlook.
    "There is some uncertainty with exactly where we are in the
economy and how the Fed proceeds with the Delta," said Lou
Brien, a market strategist at DRW Trading in Chicago.
    The Jackson Hole, Wyoming, event is being held virtually due
to the spread of coronavirus cases on the region.
    Benchmark 10-year note yields were last 1.356%,
after reaching 1.375% following Bullard's comments, the highest
since Aug. 12. If they rise above the Aug. 12 high of 1.379%, it
will be the highest since July 14.
    Trading was choppy and liquidity light with many traders and
investors out for August summer vacations.
    Data on Thursday showed that the U.S. economy grew a bit
faster than initially thought in the second quarter, lifting the
level of gross domestic product above its pre-pandemic peak, as
massive fiscal stimulus and vaccinations against COVID-19
boosted spending.
    A separate report from the Labor Department on Thursday
showed initial claims for state unemployment benefits increased
4,000 to a seasonally adjusted 353,000 for the week ended Aug.
    The Treasury will sell $62 billion in seven-year notes on
Thursday, the final sale of $183 billion in short and
intermediate-dated supply this week.
    The government saw strong demand for a $60 billion auction
of two-year notes on Tuesday and average demand for a $61
billion sale of five-year notes on Wednesday.

    August 26 Thursday 9:49AM New York / 1349 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.0525       0.0532    0.002
 Six-month bills               0.0525       0.0532    0.002
 Two-year note                 99-194/256   0.2465    0.001
 Three-year note               99-192/256   0.4599    0.008
 Five-year note                99-138/256   0.8443    0.010
 Seven-year note               99-32/256    1.1317    0.013
 10-year note                  99-4/256     1.3559    0.012
 20-year bond                  97-200/256   1.8839    0.001
 30-year bond                  101          1.9557    -0.005

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.25         0.25
 U.S. 3-year dollar swap        11.50         0.50
 U.S. 5-year dollar swap         8.50        -0.50
 U.S. 10-year dollar swap        1.25         0.25
 U.S. 30-year dollar swap      -27.75         0.50

 (Reporting by Karen Brettell; editing by Jonathan Oatis)

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