NEW YORK: US Treasuries prices fell on Monday with two-year yields hovering at their highest levels in 5-1/2 years as traders raised bets the Federal Reserve will raise interest rates in December in the wake of a strong October jobs report.
This week's government and corporate bonds supply stoked further selling, pushing five-year yields to their highest in nearly five months and 10-year yields to their highest in over three months.
"People are really buying into the December rate-hike story," said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.
The government's surprisingly robust October payrolls report released on Friday has intensified speculation the U.S. central bank has strong enough data to support a possible rate increase next month.
U.S. interest rates futures implied traders see a 70 percent chance the Fed will end its near zero rate policy at its Dec. 15-16 meeting, unchanged from Friday, according to CME Group's FedWatch program.
Benchmark 10-year Treasuries notes were down 6/32 in price with a yield of 2.355 percent, up 2 basis points from late on Friday. The 10-year yield earlier touched 2.377 percent, which was the highest intraday level since July 21, according to Reuters.
The two-year Treasuries yield was unchanged at 0.890 percent. On Friday, it hit 0.958 percent, which was its highest level since May 2010.
It is unclear whether the rise in yields will boost demand among investors seeking income, analysts said.
The U.S. Treasury Department will sell $24 billion in three-year debt at 1 p.m. (1800 GMT), followed by $24 billion auction of 10-year notes on Tuesday and $16 billion sale of 30-year bonds on Thursday.
In the "when-issued" market, traders expect the upcoming three-year issue to sell at a yield of 1.268 percent, which would be the highest yield since April 2011.
In addition to Treasuries supply, companies are expected to raise $25 billion to $30 billion in the investment-grade credit market this week, according to IFR, a Thomson Reuters unit.
The rise in U.S. yields was mitigated by lower German Bund yields following a Reuters report that a consensus is forming at the European Central Bank to reduce its deposit rate deeper into negative territory next month in a bid to avert deflation.
The ten-year Bunds yield slipped 2 basis points to 0.68 percent, expanding the spread versus its U.S. 10-year counterpart to 1.68 percentage points, which was the widest level since early May 2015.
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