Treasuries Decline Led by Shorter Maturities as Fed Set to Hike

(Bloomberg) -- Treasuries declined as data showed U.S. service industries expanded in November at the fastest pace in 13 months while Federal Reserve officials signaled an interest-rate increase next week is likely.

The Institute for Supply Management’s non-manufacturing index jumped to 57.2, exceeding all forecasts in a Bloomberg survey, from 54.8 in October. St. Louis President James Bullard said a December rate hike would be a reasonable option. Five-year U.S. Treasury yields, among the most sensitive to Fed policy expectations, rose 3 basis points to 1.85 percent. The U.S. yield curve from five to 30 years flattened to 122 basis points, after steepening the previous three trading days.

• Benchmark 10-year yields rose about 2 basis points to 2.4 percent at 4:29 p.m. in New York, after climbing as much as 6 basis points, approaching the highest closing level of 2016
• U.S. yields climbed earlier amid a slump in most euro-zone debt markets led by Italy; most euro-zone 10-year yields rose from 2 to 6 basis points, with Italian yields surging about 8 basis points after Italian voters rejected the government’s proposed constitutional reforms
• A 36,021-contract block sale of five-year Treasury futures fueled declines in that maturity
• It was a busy session for Fed speakers: In addition to Bullard, New York Fed President William Dudley said he favors “somewhat” tighter policy over time; final Fed speeches scheduled ahead of Dec. 13-14 FOMC meeting, which is expected to produce the first rate increase in a year