NEW YORK: US Treasury yields rose to their highest levels in two weeks on Wednesday before the Treasury sells $29 billion in new seven-year notes, and as investors bet that strong economic data will prompt the Federal Reserve is closer to raising interest rates.
Bonds weakened on Tuesday after and after gross domestic product came in much higher than expected for the third quarter, and Treasuries extended losses after the government had to pay slightly more to sell new five-year debt.
"People are gaining confidence that the economy is on very solid ground, and the Fed is probably going to move earlier than June, and that all rates should rise," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
Short and intermediate-dated debt has been most hurt in recent months by bexpectations of an interest rate hike, while thirty-year bonds have been in strong demand as investors reach for yield, and on concerns about deflation.
Now, "people are coming to grips that interest rates are going to rise and the front-end can only go so far before an actual rate hike. Some of the selling pressure is moving out the curve," Comiskey said.
Thin trading conditions heading into Thursday's Christmas holiday have dented demand and exacerbated price moves this week. Thirty-year bonds also took the brunt of Tuesday's selloff as investors unwound flattening trades that have been profitable this year, said traders.
Seven-year notes fell 5/32 in price to yield 2.10 percent before today's auction. Traders expect the new notes to price two basis points higher at 2.12 percent, according to the "when issued "market.
The bond market will close earlier than usual on Wednesday at about 2 p.m. (1900 GMT). It will be closed all day on Thursday.
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