NEW YORK: US Treasury yields rose on Tuesday as stronger-than-forecast data on producer prices in November offset average demand at a $12 billion auction of 30-year bonds.
The two-year yield reached its highest level in more than nine years as traders anticipated an interest rate increase from the Federal Reserve to 1.25-1.50 percent at its two-day policy meeting that ends on Wednesday.
"The focus for the market right now will be on the data and the Fed," said Subadra Rajappa, head of US rates strategy at SG Corporate & Investment Banking in New York.
Earlier on Tuesday, the US government said producer prices rose at a 12-month clip of 3.1 percent, the largest such gain since January 2012, supporting the view of a broad pickup in inflation.
Stubbornly low inflation has kept the Fed on a gradual path in increasing borrowing costs and reducing its balance sheet.
Investors awaited November figures on consumer prices, which are due at 8:30 a.m. (1330 GMT) on Wednesday, for confirmation that inflation is accelerating.
"The strength of the PPI will be viewed as a positive for the CPI number," Rajappa said.
Economists polled by Reuters forecast the consumer price index likely grew by 0.4 percent last month, bringing its year-over-year increase to 2.2 percent.
Evidence that price growth is picking up may allow the Fed to raise short-term rates at a faster pace, analysts said.
Interest rates futures implied traders are pricing in two quarter-point rate hikes next year, one fewer than what Fed officials had expected at the September policy meeting.
"Tomorrow's rate hike is a done deal. If the CPI is strong, it raises the question on the how many hikes in 2018," said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York.
On the supply front, the Treasury sold $12 billion worth of 30-year bonds to steady demand following a mixed reception to three-year and 10-year notes on Monday.
"It was a fair auction," Cantor's Lederer said.
Bond yields retreated from their session highs following the 30-year auction.
The 10-year Treasury yield was 2.407 percent, up 2.2 basis points from late on Monday, while the 30-year yield increased 1.5 basis points to 2.787 percent.
Two-year yields edged up 0.8 basis point at 1.831 percent after touching 1.847 percent which was the highest since October 2008, Reuters data showed.
Comments
Comments are closed for this article.