Treasury Yields Reach Six-Week High With Yellen, Jobs Data Ahead

  • Chance of Fed rate increase in December hovers around 50%
  • Yellen scheduled to speak to House committee Wednesday

Most Treasuries fell for a second day before Wednesday testimony from Federal Reserve Chair Janet Yellen and labor data at the end of the week that may provide clarity on whether the economy is strong enough for the central bank to raise interest rates next month.

Ten-year yields reached a six-week high before Yellen’s remarks to the House Financial Services Committee. While the official topic is financial regulation, lawmakers are free to ask her about any subject, including monetary policy.

Futures contracts signal a 50 percent chance that officials will raise rates by year-end. The probability has rebounded since last week’s policy meeting, when Fed officials kept their target near zero and signaled that they’re assessing whether to lift it in December. The calculations assume the benchmark will average 0.375 percent after the first increase, versus the current target range of zero to 0.25 percent.

"It’s definitely the aftershocks from the Fed statement last week," pricing in a greater chance of a rate increase in December, said Michael Lorizio, senior trader with Manulife Asset Management in Boston.

U.S. 10-year note yields rose four basis points, or 0.04 percentage point, to 2.21 percent, and reached the highest since Sept. 17 as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2 percent note due August 2025 fell about 3/8, or $3.75 per $1,000, to 98 1/8.

Treasuries also fell as stocks and oil advanced.

Swelling Spread

Two-year yields reached 0.77 percent, also the highest since Sept. 17. They’re 109 basis points above German bunds of a similar maturity, the widest spread since 2006.

U.S. employers added 182,000 workers last month, after hiring 142,000 in September, according to a Bloomberg survey of economists before the Labor Department releases the data Nov. 6. After this week, the U.S. will issue one more employment report before the Fed’s Dec. 16 announcement on rates.

"This week you’re going to see the market trend a little bit higher in yield” in the lead-up to the employment data, said Sean Simko, who manages $8 billion at SEI Investments Co. in Oaks, Pennsylvania.

New York Fed President William C. Dudley and Vice Chairman Stanley Fischer are also scheduled to speak Wednesday. Officials gave an unexpectedly upbeat message last month, emphasizing the positive in a mixed bag of domestic economic data. They dropped a reference to troubling global conditions and drew attention to the possibility of a boost at the committee’s next session.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE