NEW YORK: Short-dated US Treasury yields edged up on Monday to four-week highs in advance of a $26 billion two-year note sale, part of $88 billion of coupon-bearing government debt being auctioned this week.
Longer-dated Treasury yields followed Wall Street stocks lower, with traders wary of possible signals from the Federal Reserve about an interest rate increase later this year following its upcoming policy meeting on Tuesday and Wednesday.
"With stocks starting to fall, we are looking at some upward momentum on longer-dated bond prices," said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray in Chicago.
Analysts attributed the rise in short-dated yields on investors reducing their holdings of older Treasuries to make room for this week's bond supply.
They expected the two-year, five-year and seven-year auctions to fare well as the U.S. central bank is widely expected to leave short-term rates unchanged at its latest meeting.
While the U.S. economic expansion has persisted in the aftermath of Britain's stunning vote last month to leave the European Union, known as Brexit, Fed policy-makers remain concerned about low inflation and productivity.
"They would probably kick the can down the road. After Brexit, there are still a lot of risks in the market," Hoogendoorn said.
Interest rates futures implied traders saw nearly no chance the Fed would raise rates this week, but they have raised expectations of a rate increase by year-end to more than 50 percent.
The yield on the two-year note, which is sensitive to traders' views on Fed policy, was up over 1 basis point to 0.723 percent after earlier reaching 0.731 percent, matching the near four-week high struck last Thursday.
In "when-issued" activity, traders expected the new two-year issue would yield 0.743 percent, compared with the 0.745 percent yield at the prior two-year auction in June.
Benchmark 10-year Treasury notes were little changed in price for a yield of 1.561 percent.
On Wall Street, the S&P 500 index was down 0.5 percent after posting a series of record highs last week on upbeat company earnings.
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