US government debt prices fell on Monday as investors fretted that consumer and producer price data this week may show rising inflation and prompt the Federal Reserve to consider resuming interest rate hikes. Data on producer prices is set for release on Tuesday and consumer prices on Thursday.
"If inflation worsens, the Fed will resume hiking rates promptly," said Charles Lieberman, chief investment officer at Advisors Capital Management LLC in Paramus, New Jersey.
The benchmark 10-year Treasury note traded 3/32 lower in price on Monday afternoon for a yield of 4.61 percent, up from 4.59 percent late on Friday. Bond prices move inversely to their yields.
Producer prices excluding food and energy are expected to have risen 0.1 percent in October after a 0.6 percent increase in September, according to a Reuters poll of economists. Consumer prices excluding food and energy, known as core consumer prices, are seen having risen 0.2 percent in October, the same rate as in September. The Fed's presumed comfort level for increases in core consumer prices is between 1 percent and 2 percent. The year-over-year growth in core consumer prices in September was 2.9 percent.
The two-year note was trading 1/32 lower in price for a yield of 4.77 percent, up from 4.75 percent late on Friday. Two-year notes, which are more sensitive to expectations of changes in the fed funds rate, have generally been underperforming their longer-dated counterparts in recent weeks.
"The short part of the yield curve is still being held up by Fed thoughts - the Fed is out there saying they will raise rates again if they have to, and fed funds are still 5.25 percent and are probably not going to change any time soon," said Bill Hornbarger, chief fixed-income strategist at A.G. Edwards & Sons in St. Louis.
The inversion between the 2- and 10-year notes continued to expand, reaching to near 16 basis points on Monday, the widest level in over eight months.
Yield curve inversions, in which shorter-dated yields are higher than longer-dated yields, are often seen as a sign that economic growth will slow in the future.
The five-year note was 3/32 lower in price for a yield of 4.60 percent, up from 4.58 percent late on Friday, while the 30-year bond was down 3/32 in price to yield 4.71 percent.