US Treasury yields rose on Tuesday, with the 30-year yield at its highest level in over a month as skittishness that the Federal Reserve will raise interest rates next week led to a lackluster sale of $24 billion of three-year government notes. The Treasury Department will auction $20 billion in 10-year debt on Wednesday and $12 billion in 30-year bonds on Thursday.
"It's hard to take this much duration risk before the Fed," said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York. Investors are awaiting clues on the economy, culminating with the government's payrolls report for February, which is due on Friday, to determine whether a rate hike at the upcoming Fed meeting is a done deal.
Bond yields jumped last week in reaction to comments from US central bank officials, including Fed Chair Janet Yellen, which spurred traders to raise their bets that the Fed will lift interest rates by a quarter of a percentage point, to 0.75-1.00 percent, at its two-day policy meeting on March 14-15.
Fed officials said the US economy is close to achieving full employment and to reaching the Fed's 2 percent inflation goal. On Wednesday, payroll processor ADP will release its private employment report. Analysts polled by Reuters forecast companies likely added 190,000 workers last month versus 246,000 in January. "The conditions for the Fed to increase rates have been there for some time," said Bryce Doty, senior portfolio manager at Sit Fixed Income Advisors LLC in Minneapolis.
Interest rate futures implied traders have priced in an 84 percent chance the Fed will raise rates at the upcoming meeting , unchanged from late Monday, CME Group's FedWatch tool showed. Lofty expectations on a pending US rate increase curbed bidding at Tuesday's three-year note auction, the first part of this week's $56 billion in coupon-bearing Treasury supply, analysts said.
The three-year note issue was sold at a yield of 1.630 percent, the highest at a three-year auction in nearly seven years. On the open market, the yield on benchmark 10-year Treasury notes was up 2 basis points at 2.514 percent, while the 30-year yield was up nearly 2 basis points at 3.114 percent after touching its highest level since February 3, Reuters data showed.