Treasury two-year notes yielded the most in three years in pre-auction trading before the U.S. sells $30 billion of the securities amid speculation the Federal Reserve is on pace to raise interest rates next year.
A higher-than-forecast yield dimmed the Treasury’s $7 billion inflation-linked bond auction for the Wall Street dealers that bid at U.S. government debt sales even with investor demand greater than average.
Treasuries rallied for a second day as signs the U.S. economic recovery remains uneven and tension in Iraq bolstered demand at the government’s 30-year bond auction to the highest level in more than a year.
The Treasury’s sale of $28 billion in three-year notes drew the highest yield since May 2011 and left primary dealers the highest percentage of the debt since March amid bets the Federal Reserve will raise interest rates in 2015.
U.S. stock indexes slumped from all- time highs as a selloff in small-cap and Internet companies resumed. Treasuries rose with emerging-market shares on speculation central banks will push ahead with stimulus efforts.