US bond prices tumble

US Treasuries prices fell on Thursday with benchmark yields jumping to their highest in a month as the US economy expanded in the third quarter on solid consumer spending, reinforcing chances the Federal Reserve may hike interest rates in December.
A wave of corporate supply led by a huge multi-part deal from software giant Microsoft exacerbated the market sell-off with dealers dumping Treasuries to hedge the bonds they were underwriting.
Consumer spending grew at a 3.2 percent rate, but its contribution to overall domestic growth was undercut by a sharp cutback in inventory building, which resulted in a 1.5-percent increase in the government's first reading in gross domestic product in the third quarter, the Commerce Department said. It a tad short of the 1.6-percent gain expected by analysts polled by Reuters.
"The (GDP) number may be good enough for the Fed to not view the economy negatively," Collin Martin, director of fixed income at Schwab Center for Financial Research in New York.
The advance third-quarter GDP report came a day after Fed policymakers left rates unchanged near zero, but left the door open for a rate increase at their December 15-16 policy meeting, citing further improvement in the jobs market.
Prior to the release of the policy statement, interest rates futures implied traders had priced in about a 1-in-3 chance of a rate increase in December. As of late Thursday, they implied traders now see a 50 percent probability of a rate hike, according to CME Group's FedWatch program.
"The Fed wanted a 50-50 outlook for December so mission accomplished," said Jim Caron, a portfolio manager at Morgan Stanley Investment Management in New York.
With a December rate hike back in play due to a resilient US economy, yields broadly rose to their highest in a month, drawing bargain-minded investors to a $29 billion sale of seven-year notes.
The two-year Treasuries yield, which is most sensitive to traders' view on Fed policy, rose 2 basis points to 0.724 percent. Earlier the two-year yield touched 0.736 percent, the highest in more than month.
Benchmark 10-year Treasuries notes fell 23/32 in price to yield 2.171 percent, up 8 basis points. The 10-year yield broke above its 200-day moving average to reach its highest levels since late September.
The 30-year bond shed nearly 2 points in price with a yield of 2.961 percent, up almost 10 basis points.