Treasuries Fall as Manufacturing Gauge Climbs to One-Year High

  • Benchmark yields rise as Markit PMI reading highest since 2015
  • Futures traders see 70% chance of a Fed rate hike this year

Treasuries fell after a U.S. manufacturing gauge climbed to the highest since 2015, bolstering the Federal Reserve’s case to raise interest rates this year.

Benchmark 10-year note yields rose after the Markit purchasing managers’ index climbed this month to the highest since last October. A gauge of the U.S. yield curve steepened for the first time in four days.

“The PMI was a little stronger than expected,” said Thomas Roth, senior Treasury trader in New York at MUFG Securities Americas Inc. “It’s a good sign. We are looking for that revival in manufacturing. People are getting more convinced that the Fed is going to go in December.”

Futures show traders see about a 70 percent chance of a rate hike by December, up from 66 percent a week ago, even as they assign just a 19 percent chance of an increase at the Fed’s policy meeting next week. St. Louis Fed President James Bullard on Monday said December is “most likely” for a rate increase, even as he said U.S. interest rates are likely to stay very low for several years because of low productivity and investor demand for safe assets.

Benchmark U.S. 10-year yields rose three basis points, or 0.03 percentage point, to 1.76 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data, the highest closing level in a week. The price of the 1.5 percent security due in August 2026 was 97 20/32.

The gap between yields on five- and 30-year notes, a gauge of the yield curve, steepened to about 1.24 percentage points.

Treasuries erased earlier gains after a gauge of demand declined at a Bank of England reverse note auction.

"We had a poor gilt reverse auction,"said David Keeble, New York-based head of fixed-income strategy at Credit Agricole SA. "That really sparked a wave of selloff in the Treasury market. What happened is very few people wanted to sell their gilts to Bank of England, less than usual."

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