U.S. Government Bond Yields Rise

U.S. government bonds weakened Wednesday as major stock indexes climbed toward fresh records.

The yield on the benchmark 10-year U.S. Treasury note settled at 2.339%, compared with 2.300% on Tuesday. Yields rise as bond prices fall.

Bond yields have risen in recent weeks as investors have increasingly bet the Federal Reserve will raise interest rates once more by year's end. Analysts have also been eyeing the potential that, at the end of her term, Fed Chairwoman Janet Yellen could be replaced by someone with a more hawkish stance on monetary policy.

President Donald Trump, who said Tuesday he has narrowed his search for the Fed nominee to five candidates, including Ms. Yellen, is expected to make a decision before leaving for a trip to Asia on Nov. 3.

A Fed that unwinds easy-money policies faster than investors anticipate could send yields higher, analysts said. Fund managers believe a policy misstep from the Fed or the European Central Bank ranks as the top risk to the markets, Bank of America Merrill Lynch found in its October global fund manager survey.

Still, others say the Fed's impact on the bond market could be limited. The central bank has clearly telegraphed its intentions to normalize its balance sheet and gradually raise rates, several investors said, and economic growth has been solid enough to support the moves.

"We've got a body of work from this current Fed composition that indicates a certain monetary policy path, and while it could certainly be impacted by new introductions to the voting body, ultimately they're going to be driven by their dual mandate," said Bill Northey, chief investment officer for the Private Client Group of U.S. Bank. "It's not something we're anticipating will take a material departure from its current path."

Meanwhile, a growing consensus the Fed will raise rates in December continued to send yields on shorter-term debt higher. The yield on the two-year U.S. Treasury note, which tends to be more sensitive to interest-rate expectations, settled at 1.563%-- around a nine-year high -- compared with 1.550% on Tuesday.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

October 18, 2017 16:14 ET (20:14 GMT)