NEW YORK: US Treasury yields rose on Tuesday with benchmark yields hovering near four-month highs as bond dealers sold government bonds to hedge a large global bond issue from Saudi Arabia they are underwriting.
Bond yields had fallen earlier following a government report on domestic consumer prices which showed underlying inflation trend moderated in September. This raised concerns it may take longer than expected for inflation to reach the Federal Reserve's 2-percent target.
"The Saudi deal. That's the word on the street," Aaron Kohli, interest rates strategist at BMO Capital Markets in New York said of the factor that propelled bond yields higher.
Other investors also cited the Saudi deal as a main factor in Tuesday's trading, which saw low volumes and low volatility.
Saudi Arabia plans to sell a multi-part bond issue worth $10 billion to $15 billion, according to IFR, a Thomson Reuters unit.
Bond dealers typical sell Treasuries to hedge against a deal they underwrite and they buy them back after the deal is sold.
Benchmark 10-year Treasury notes were last down 4/32 in price for a yield of 1.780 percent, up 1 basis point on the day and not far below a four-month peak of 1.841 percent set on Monday.
Earlier Monday, the 10-year yield slipped to 1.752 percent following data that showed underlying inflation moderated in September, supporting the view there is ample slack in the economy and the Federal Reserve would stay on a glacial path to raise interest rates.
The US Labor Department said the Consumer Price Index, its broadest inflation gauge, rose 0.3 percent in September, matching the median forecast among analysts polled by Reuters.
However the CPI core rate, which excludes volatile food and energy prices, edged up 0.1 percent in September, falling short of an expected 0.2 percent increase.
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