Updated Monday, August 31, 2015 as of 4:53 AM ET

U.S. Two-Year Notes Approach Highest Auction Yield Since 2011

(Bloomberg) -- Treasury two-year notes were set to be sold today at the second-highest yield at an auctionof the security since 2011 on speculation the Federal Reserve will raise interest rates before the debt matures.

Benchmark 10-year note yields touched the highest level in more than two weeks as a report showed the Richmond Fed manufacturing index rose more than forecast in April, reinforcing the central bank’s view that the economy is improving and stimulus cuts are warranted. The two-year securities have returned 0.3% this year through yesterday, compared with 1.9% for the broader Treasury market, according to Bank of America Merrill Lynch indexes.

“The economy is improving and it puts pressure on yields,” said Charles Comiskey, New York-based head of Treasury trading at Bank of Nova Scotia in New York, one of 22 primary dealers that trade with the Fed. “There’s selling going on.”

The benchmark 10-year yield rose two basis points, or 0.02 percentage point, to 2.73% at 10:10 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 2.75% note maturing in February 2024 declined 1/8, or $1.25% $1,0000 face amount, to 100 1/8. The yield reached the highest level since April 4.

Treasury trading volume dropped yesterday to $146 billion, the least since Dec. 27, according to ICAP Plc, the largest inter-dealer broker of U.S. government debt. It reached $582.4 billion on March 13, the highest in more than nine months, according to ICAP.

The Bloomberg Global Developed Sovereign Bond Index has gained 3.4% this year, versus a 4.6% decline in 2013.


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