By Sam Goldfarb

Selling of U.S. government bonds slowed to a modest pace Friday, pushing yields slightly higher after two days of sharp increases.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.588%, according to Tradeweb, compared with 2.580% Thursday. Yields rise when bond prices fall.

Bonds sold off Wednesday afternoon and into Thursday after the Federal Reserve raised interest rates for the second time since 2006 and signaled a slightly faster pace of tightening next year than it had previously anticipated.

Fed officials justified the moves by pointing to an improving U.S. economy. But Fed Chairwoman Janet Yellen acknowledged that the central bank is also monitoring U.S. fiscal policy, which is widely expected to become more expansive next year as President-elect Donald Trump assumes office.

The yield on the 10-year note, which was 2.446% right before Fed's policy announcement, climbed as high as 2.628% Thursday.

Still, there were signs Thursday that the selling was orderly, reflecting a rational response to the possibility of more rate increases next year rather than "just an outright market collapse," said John Canavan, market analyst at Stone and McCarthy Research Associates.

Bonds now have a chance to make "a little bit of a quiet correction" though any pause in the selloff wouldn't "necessarily tell us anything about where we're at going forward," he added.

After reaching record lows in July, bond yields began to rise in the late summer and early fall due in part to a run of solid economic data and signs that inflation might be starting to creep up after years of remaining stubbornly below the Fed's 2% target.Inflation chips away bonds' fixed returns over time and is a big threat to long-term government bonds.

Yields then soared after the Nov. 8 election, reflecting bets that Mr. Trump and a Republican-controlled Congress will increase the budget deficit by cutting taxes and boosting spending on defense and infrastructure.

Adopting expansive fiscal policies could diminish the value of outstanding government debt by adding to the supply of bonds. It could also spur growth and inflation, prompting the Fed to quicken its pace of interest-rate increases.

Write to Sam Goldfarb at

(END) Dow Jones Newswires

December 16, 2016 10:43 ET (15:43 GMT)

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