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US bond prices fall on stock gains, Fed officials' remarks

U.S. Treasury prices fell on Monday amid a rebound in U.S. equity markets and as comments by two top Federal Reserve officials, suggesting a possible year-end rate increase, spurred traders to reduce their bond holdings.

Global stock markets tumbled late last week after the U.S. central bank stuck to its near-zero interest rate policy due to concerns about global economic growth and market volatility.

On Friday, short-to-medium U.S. yields fell to three-week lows on bets the Fed may not raise interest rates until 2016.

"It's a reversal of the dovish tone of the FOMC meeting," said Subadra Rajappa, head of U.S. rates strategy at SG Corporate & Investment Banking in New York.

Symbol
Yield
 
Change
%Change
US 3-MO
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US 1-YR
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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Traders are on watch for further clues this week that may indicate whether the Fed is still on track to raise rates by year-end.

Over the weekend, San Francisco Fed President John Williams said the Fed's decision to leave rates near zero was a "close call."

On Monday, St. Louis Fed chief James Bullard told CNBC television there was "a powerful case to be made" for beginning to tighten policy due to an improving domestic economy.

Atlanta Fed President Dennis Lockhart also spoke on Monday, saying he was comfortable with a rate hike later this year.

In the meantime, major U.S. stock indexes rose about 0.8 percent in early trading as some traders stepped back into risky assets following back-to-back days of losses.

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Investors will face $90 billion worth of fixed-rate debt supply, starting with a $26 billion auction of new two-year notes on Tuesday.

On the data front, traders brushed off a steeper-than-forecast 4.8 percent drop in existing home sales in August.

On the open market, benchmark 10-year Treasuries notes were yielding 2.1976 percent, up 6 basis points from late on Friday.

Two-year notes were down 2/32 in price for a yield of 0.7103 percent, up 3 basis points from Friday, while the 30-year bond was down 1-10/32 in price to yield 3.0151 percent, up 8 basis points on the day.