Treasurys tumbled on Tuesday as upbeat consumer spending data lowered demand for U.S. debt, pushing the two-year note yield to its highest level since 2011.
The two-year note yield hit a session high of 0.815 percent, its highest level since 2011, according to FactSet data. The three-year note yield rose to its highest in more than two years at 1.122 percent, according to Reuters. The benchmark 10-year Treasury yield increased 8 basis points to 2.27 percent, a session high. When a bond yield falls, the price rises.
Strategists said the August retail sales report, along with the idea that the Fed may pass on an interest rate hike at Thursday's meeting helped to push investors away from safer assets such as Treasurys. U.S. stocks rose 1 percent, with the Dow adding more than 200 points.
"There is some unusual market action in the short end of the Treasury yield curve today," said Peter Boockvar, chief market analyst at the Lindsey Group. "I'm hearing that there is unwinding of steepening trades and there very well could be positioning shifts ahead of Thursday. These moves are sharp and we can only assume the violent moves we'll see if the Fed actually raises rates."
U.S. August retail sales data for August rose 0.2 percent, slightly below the expected 0.3 percent growth, while July's figures were revised upward. Separately, the Empire State manufacturing survey showed activity in the region declined more than expected.
The data comes just a day before the Federal Reserve kicks off a highly anticipated policy meeting where it could decide to raise benchmark interest rates for the first time in more than nine years.