Prices of U.S. government debt fell Friday, sending the yield on the two-year note to the highest level in more than five years, as the latest employment report bolstered investors' expectations of a possible Federal Reserve interest-rate increase in December. The yield on the benchmark 10-year Treasury note also rose to the highest since July. Yields rise as bond prices fall. "The U.S. economy is allowing the Fed to go in December," barring big selloffs in stock, said Priya Misra, head of global rates strategy at TD Securities in New York. Bond yields have room to go if the Fed tightens policy next month, she said. The U.S. economy added 271,000 new jobs last month, the Labor Department said in its nonfarm employment release. Economists had expected 183,000. The bond market has been under selling pressure since Oct. 28 when Fed officials signaled that they were on course to tighten monetary policy before the end of the year. Fed Chairwoman Janet Yellen said Wednesday that December is a "live possibility." Friday's selling pressure sent the yield on the two-year note to 0.942%, the highest intraday level since May 2010, according to Tradeweb. Yields rise as bond prices fall. The yield, highly sensitive to changes in the Fed's interest-rate policy outlook, was recently at 0.914%, compared with 0.842% right before the jobs release. The yield on the benchmark 10-year note rose 2.309% compared with 2.243% before the data. Fed funds futures, used by investors and traders to place bets on central-bank policy, showed Friday that they see a 70% likelihood of a rate increase from the Fed at its Dec. 15-16 policy meeting, according to data from CME Group. The probability was 58% ahead of the jobs report. It was 38% before the Fed's interest-rate statement last month.
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