Treasuries Drop After Greece Gets Deal as Focus Shifts to Fed

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Treasury 10-year notes fell, pushing yields to the highest level in more than two weeks, after Greece secured an agreement with creditors to stay in the euro, crimping refuge demand.

Treasuries pared losses as investors shift focus to congressional testimony this week by Federal Reserve Chair Janet Yellen, as they seek signals for the economic outlook and the likelihood of an interest rate increase later this year. Greece and creditors reached an agreement to start formal negotiations for a third bailout program after 17 hours of talks in Brussels.

“Attention will come back to domestic drivers, the Fed and how data is holding up in the U.S,” said Stanley Sun, an interest-rate strategist at Nomura Holdings Inc., one of 22 primary dealers that trade with the central bank. “The market will take its eyes off Greece for a little bit.”

The U.S. 10-year note yield increased six basis points, or 0.06 percentage point, to 2.46 percent as of 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The benchmark 2.125 percent security due in May 2025 fell 15/32, or $4.69 per $1,000 face amount, to 97 1/8. The yield touched 2.47 percent, the highest level on a closing basis since June 26.

Fed Bets

Fed funds futures show a 35 percent chance the central bank will increase its benchmark rate in September from virtually zero, up from 33 percent on July 10, and a 69 percent chance by December, up from 67 percent, according to data compiled by Bloomberg.

“Zero is no longer the right rate,” said Peter Fisher, senior director of the BlackRock Investment Institute, speaking at the company’s offices in New York.

Investors will be focusing on Yellen’s testimony on July 15 and July 16 to gauge the outlook for the Fed and the economy. Retail sales, manufacturing, industrial production and inflation reports are all due this week.

“There are signs of wage growth,” BlackRock’s Fisher said. “The labor market is healing.”

Treasuries have lost 0.4 percent in 2015 through July 10, based on the Bloomberg U.S. Treasury Bond Index. Ten-year yields will rise to 2.60 percent by Dec. 31, according to the median of 67 analysts’ and economists’ predictions compiled by Bloomberg News.

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