Treasury Yields Reach Year’s High as Fed on Track for Rate Hike

  • Futures traders assign 98% chance of an increase in December
  • Yellen says interest-rate boost could come ‘relatively soon’

Fed Chair Yellen: Case for a Rate Hike Remains Strong

Treasuries fell, pushing 10-year yields to the highest level of 2016, as Federal Reserve Chair Janet Yellen signaled the U.S. central bank is close to lifting interest rates.

Yields rose across maturities as Yellen said Thursday that a rate hike “could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the committee’s objectives.” U.S. new-home construction jumped to a nine-year high in October, a Commerce Department report showed.

"You are getting good confirmation that the data seems to be on track," said Subadra Rajappa, head of U.S. rates strategy in New York at Societe Generale SA, one of 23 primary dealers that trade with the Fed. "You have a Fed that sees no reason not to hike in December, and that’s really pushing the market lower."

Treasury 10-year note yields jumped eight basis points, or 0.08 percentage point, to 2.30 percent as of 5 p.m. New York time, touching the highest level since December, according to Bloomberg Bond Trader data. The price of the 2 percent security due in November 2026 was 97 10/32.

Fiscal Speculation

Yellen addressed U.S. lawmakers Thursday following Donald Trump’s presidential victory, a win that stoked speculation his spending plans will quicken the pace of Fed rate hikes. Traders assign about a 98 percent probability to a Fed boost at its final meeting of the year on Dec. 13-14, futures indicate. The election results spurred a bond-market selloff that wiped off a record $1.2 trillion last week.

"Even though it’s severely oversold, it’s having a difficult time rebounding," said Thomas Roth, senior Treasury trader in New York at MUFG Securities Americas Inc. "The market is unable to gain a footing and go higher."

Beyond December, swaps trading shows the expectation for a faster tightening cycle. Overnight index swap contracts imply the central bank’s benchmark rate will be 1.28 percent in two years, compared with an expected 0.83 percent on Nov. 7.

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