US Treasury yields rose broadly on Wednesday, with the 2-year's hitting a more than seven-year high, on increased expectations that the Federal Reserve will raise US overnight interest rates at its March meeting. Fed funds futures prices showed investors saw a more than 65 percent chance of a rate hike this month after comments from two central bank officials on Tuesday.
New York Fed President William Dudley, one of the most influential US central bankers and a permanent voter on the Federal Open Markets Committee, said the case for tightening monetary policy soon had become "a lot more compelling." San Francisco Fed President John Williams said: "A rate increase is very much on the table for serious consideration" at the March 15-16 meeting.
Yields on the 2-year Treasury note rose to 1.308 percent, their highest since August 2009.
Longer-dated Treasuries also saw substantial selling after the release of January's data on personal consumption expenditure, or PCE, that showed the Fed's favoured measure of inflation posting its largest monthly increase in four years.
The yield on 10-year notes rose to 2.471 percent, the highest since February 16. Prices on 30-year bonds fell by more than 2 points, pushing yields to 3.074 percent, the highest since February 16. The selloff was exacerbated by strong gains in US stocks, which reduced the appetite for safe-haven US government debt. The Dow moved above 21,000 points for the first time in history and the S&P 500 and Nasdaq both touched all-time intraday highs.
"Between the risk-on move in equities and this fear that we could get a rate hike (in two weeks) we saw a lot of traders scramble and start to price in that eventuality, which meant they had to start selling a lot of their bonds," said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.
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