Treasury notes fell after a report showed June housing starts were stronger than forecast, adding to evidence the U.S. economy is strengthening.
Shorter-term notes led declines as building permits unexpectedly increased. Federal Reserve Chair Janet Yellen reiterated that interest-rate increases, which she expects to start this year, will be gradual.
“The market is starting to think more about a Fed hike sooner than later and is without the fear trade that has gripped us over the last month,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “This economy is in good shape.”
Treasury 10-year note yields rose one basis point, or 0.01 percentage point, to 2.37 percent at 8:34 a.m. in New York, according to Bloomberg Bond Trader prices.
Yellen said Wednesday that central-bank officials may raise rates this year if economic growth matches up with their projections. Fed funds futures show a 37 percent chance the central bank will increase its benchmark rate at its September meeting from virtually zero, and 70 percent odds for a rise by year-end, according to data compiled by Bloomberg.