U.S. 2-Year Yields Reach Highest Since 2011 as Fed Meeting Looms

Treasuries tumbled, lifting the two-year note yield to the highest since April 2011, as gains in U.S. retail sales prompted investors to retreat from the securities that would be most affected if the Federal Reserve raises interest rates.

Sell orders in two- and five-year Treasury futures helped accelerate the move higher in yields amid investors’ concern that the Fed may raise rates as soon as Thursday for the first time since 2006. Yields rose the most in almost three weeks after data showed retail sales increased 0.2 percent in August Yields rose the most in almost three weeks after data showed retail sales increased 0.2 percent in August. Benchmark  U.S. 10-year note yields rose 10 basis points to 2.29 percent. The German 10-year yield rose 9 basis points to 0.74 percent, while U.K. debt of similar maturity rose 6 basis points to 1.91 percent.

Demand from indirect bidders, a category that includes mutual funds and foreign buyers, fell to 26 percent. Demand from mutual funds “is much lighter,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, adding that buying from foreign central banks may also have been modest “considering the recent foreign selling of longer-dated Treasuries.”

Fed Nervousness occurs - Futures contracts show a 28 percent probability that the Fed will boost rates when it meets Sept. 16-17, according to data compiled by Bloomberg.The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase, versus the current target of zero to 0.25 percent. The federal funds rate is an interest rate at which depository institutions lend balances to each other overnight.

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