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.

Treasuries Decline Led by Shorter Maturities as Fed Set to Hike
  • 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