US Government bonds sag after Yellen signals interest rate hike this year

The US 10-year Treasury yields jumped above 1.61 percent mark Monday after Fed Chair Janet Yellen indicated an interest rate hike for this year. The yield on the benchmark 10-year Treasury note bounced 8 basis points to 1.661 percent, the yield on 5-year note climbed 9 basis points to 0 1.225 percent and the yield on short-term 2-year note also increased 9 basis points to 0.837 percent.

At the Jackson Hole Symposium, Yellen said that the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.

She further added that in light of the continued solid performance of the labour market and the Fed’s outlook for economic activity and inflation the case for an increase in the federal funds rate has strengthened in recent months. However, Yellen furthered that of course, the Fed’s decisions always depend on the degree to which incoming data continues to confirm the Committee's outlook.

The preliminary gross domestic product (GDP) increased 1.1 percent in the second quarter of 2016, well below market expectations for a +1.2 percent result, from the revised +0.8 percent reading seen in first quarter of 2016 (previous was +1.1 percent).

Moreover, the President of the Federal Reserve Bank of Kansas City, Esther George (voter in 2016) said that she wants to raise short-term rates to around 3 percent over next 2 or 3 years. She said that does not want to raise rates so much that an already slow-growing economy slows further, the economic outlook is modest and she supports Yellen's plan to move rates up gradually.

She further added that the consumer spending & labour markets shower bright spots but business investment remains disappointing and mentioned that economic output is likely to grow by 2 percent this year.

Meanwhile, the S&P 500 Futures traded 2 points higher at 2,170 by 12:40 GMT.