Investors are looking ahead to Wednesday OPEC meeting, Friday's U.S. jobs report
Treasury yields turned lower on Tuesday as a precipitous drop in oil prices and a flurry of month-end buying buoyed government-bond buying, pressuring yields.
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The 10-year yield declined 1.4 basis point to 2.305%, while the two-year yield shed 1.4 basis point to 1.097%. Bond yields rise as prices fall.
The 30-year yield shed 2.9 basis points to 2.953%, as investors bought up long-term debt ahead of a month-end rebalancing of the Barclays U.S. bond index.
Global bond markets have endured a vicious postelection selloff as expectations that President-elect Donald Trump's fiscal policies will stoke inflationary pressures. The 10-year yield touched 2.42% last week, its highest level since July 2015.
Oil prices plunged as investors worried that the Organization of the Petroleum Exporting Countries would fail to agree on a plan for cutting, or freezing production. Investors have been looking ahead to Wednesday's meeting, which will be held in Vienna, since September, when the cartel--which includes some of the world's largest oil exporters--said it had agreed on the need to reduce production.
Lower oil prices help suppress inflation, making bonds more attractive by boosting the real return for investors, said Tom di Galoma, managing director of Treasury trading at Seaport Global.
"As oil falls, people perceive that as leading to lower inflation, generally. That tends to produce higher bond prices because people feel more comfortable about the inflation outlook," di Galoma said.
Meanwhile, investors braced for a series of potentially market-moving economic data later in the week, culminating in the November jobs report, expected early Friday. The countdown to the report effectively begins on Wednesday, with the release of Automatic Data Processing Inc.'s private-sector jobs growth figures, followed by weekly jobless claims figures on Thursday.
Investors are also looking ahead to the Institute for Supply Management's manufacturing index for November, expected Thursday. Also, members of the Organization of the Petroleum Exporting Countries meet on Wednesday to decide whether to freeze or cut oil production (http://www.marketwatch.com/story/italian-referendum-opec-talks-keep-european-stocks-in-tight-ranges-2016-11-29).
Market-based expectations that the Fed will hike rates later this month have touched 100%, and analysts warned that it would take a truly abysmal set of economic data to shake the market's view.
Read: Here's one reason why the Fed might not hike interest rates in December (http://www.marketwatch.com/story/heres-one-reason-why-the-fed-might-not-hike-interest-rates-in-december-2016-11-16)
Earlier in the day, yields climbed after a revised reading on third-quarter economic growth showed the U.S. economy expanded at its fastest pace in more than two years last quarter, further cementing expectations for a Fed rate hike in December.
"Barring a disastrous loss of jobs, we're doubtful that anything within reason will alter the Fed's intention to hike in two weeks," said Ian Lyngen and Aaron Kohli, a team of fixed-income strategists at BMO Capital Markets, in a research note published Tuesday.
Also, Federal Reserve Gov. Jerome Powell said Tuesday that the case for raising interest rates had strengthen, but his comments had little impact on the market because investors have already largely priced this in.
German yields edged higher, while Italian and Spanish yields sank, as anxieties connected to the Austrian presidential runoff election and Italian constitutional referendum, both set for Sunday, stoked demand for European sovereign debt.
The 10-year bund yield , considered the European benchmark, gained 0.7 basis point to 0.214%.