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September in Play for Bond Traders as Goldman Sees 40% Fed Odds

  • Two-year note yields rise to highest since early June
  • Probability of Fed rate hike by December rises above 60%

A September interest-rate increase by the Federal Reserve, an unthinkable move just two months ago, is now very much on the table, according to Goldman Sachs Group Inc. The bond market concurs.

Benchmark two-year Treasury yields reached the highest since early June after Fed Chair Janet Yellen said in a speech Friday that the case for tightening policy has strengthened. Traders’ conviction only grew after Vice Chairman Stanley Fischer said in an interview that her remarks leave open the possibility of a September hike. The market-implied chance of a boost when the Federal Open Market Committee meets next month rose to 42 percent, from zero in late June after the U.K. vote to leave the European Union.