U.S. Government Bonds Weaken as Stocks Rally

U.S. government bond prices fell Wednesday, sending yields climbing again as major stock indexes climbed toward fresh records.

The yield on the benchmark 10-year U.S. Treasury note recently was trading at 2.658%, according to Tradeweb, compared with 2.622% Tuesday.

Yields, which rise as bond prices fall, have advanced in four of the past five trading days, pressured by growing confidence among investors about the global economy.

World output adjusted for inflation is projected to grow in 2018 at the fastest rate in seven years, according to an International Monetary Fund forecast released Monday, building on gains from the previous year. The recently passed U.S. tax overhaul will likely help nudge an acceleration in growth, the IMF added, possibly accounting for around half of the upward revision to global growth over the next two years.

Expectations that an uptick in economic activity will continue in 2018 have helped send U.S. stocks to records in recent sessions while weighing on government bond prices. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite climbed Wednesday, heading toward fresh closing highs.

"The data has been pretty good and the market is starting to believe the [Federal Reserve] will actually be able to hike three times this year, so on a short-term basis we're seeing that confluence of factors play out," said Lisa Hornby, fixed-income portfolio manager at Schroders Investment Management.

Federal-funds futures, used by traders to place bets on the path of interest rates, showed early Wednesday a roughly 58% chance that the Fed will raise rates at least three times this year, up from 40% one month ago.

Growing expectations of multiple rate increases have pulled up rates on shorter-term bonds, which tend to be more sensitive to shifts in interest rates. The yield on the 2-year Treasury note was recently at 2.080%, according to Tradeweb, compared with 2.042% Tuesday.

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

U.S. government-bond prices fell Wednesday, sending yields climbing again as the Dow Jones Industrial Average notched a fresh record.

The yield on the benchmark 10-year U.S. Treasury note settled at 2.654%, compared with 2.622% Tuesday.

The yield on the 10-year note, which rises as bond prices fall, has advanced in five of the past six trading days, after settling at the highest level in more than three years earlier in the week.

Expectations that an uptick in global economic activity will continue in 2018 have helped send U.S. stocks to records in recent sessions while weighing on the prices of government bonds, which tend to do well when investors are feeling uncertain about the economic outlook.

"The data has been pretty good, and the market is starting to believe the [Federal Reserve] will actually be able to hike [interest rates] three times this year, so on a short-term basis we're seeing that confluence of factors play out," said Lisa Hornby, fixed-income portfolio manager at Schroders Investment Management.

Federal-funds futures, used by traders to place bets on the path of interest rates, showed on Wednesday afternoon a roughly 58% chance that the Fed will raise short-term rates at least three times this year, up from 40% one month ago.

Growing expectations of multiple rate increases have pulled up rates on shorter-term bonds, which tend to be more sensitive to shifts in interest rates. The yield on the two-year Treasury note settled at 2.084%, up from 2.042% Tuesday, notching a fresh 52-week high.

Meanwhile, the Treasury Department sold $34 billion of five-year notes and $15 billion in two-year floating-rate securities Wednesday as part of the $103 billion of notes it was scheduled to raise this week. The government plans to hold an offering of $28 billion of seven-year notes Thursday.

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

(END) Dow Jones Newswires

January 24, 2018 16:53 ET (21:53 GMT)