Treasurys lower on Plosser comments, drop in oil

NEW YORK (AP) _ Treasury prices dropped Tuesday as Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank will need to boost interest rates "sooner rather than later" to fend off inflation.

Plosser, who is a voting member of the Fed's rate-setting committee, said policymakers should hike rates even if employment and financial conditions haven't revived. He is known as being extra-vigilant about inflation dangers.

Many economists predict Fed policymakers will leave rates alone again when they meet next Aug. 5. Higher rates makes some government debt less attractive.

"Inflation is already too high and inconsistent with our goal of — and responsibility to ensure — price stability," Plosser said in a speech to a group assembled by the Philadelphia Business Journal. "We will need to reverse course — the exact timing depends on how the economy evolves, but I anticipate the reversal will need to be started sooner rather than later."

In late trading, the 10-year Treasury note fell 16/32 to 98 5/32. Its yield rose to 4.1 percent from 4.04 percent on Monday, according to BGCantor Market Data. Yields move in the opposite direction as prices.

The 30-year long bond — typically the most sensitive to inflation worries — fell 22/32 to 95 13/32. Its yield rose to 4.66 percent from 4.62 percent Monday.

The 2-year note fell 7 6/32 to 100 9/32, and yielded 2.73 percent, up from 2.59 percent. Short-term debt is more sensitive to changes in interest rates.

The 3-month Treasury bill's yield rose to 1.52 from 1.46 on Monday, and the discount rate rose to 1.50 from 1.44 percent.

T.J. Marta, fixed-income analyst at RBC Capital Markets, said one factor behind the retreat in Treasurys is that Plosser's comments might have helped drive down oil prices. Higher interest rates prop up the dollar, and that helps contain oil prices.

"I really think that oil has stolen the show right now," Marta said. "Hiking rates would take further wind out of the sails of the commodity boom."

A barrel of light sweet crude fell $3.09 to settle at $127.95 on the New York Mercantile Exchange.

There was also volatility in the Treasury market ahead of several auctions this week. The government was selling $6 billion in 20-year Treasury Inflation Protected Securities, or TIPS, during Tuesday's session. It plans to auction a record $31 billion of two-year notes on Wednesday, followed by $21 billion in five-year notes on Thursday.

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