By Joseph Adinolfi, MarketWatch

European yields rise after strong PMI data

Treasury yields climbed Tuesday following hawkish comments from Philadelphia Federal Reserve Bank President Patrick Harker, who said over the weekend that he would likely support raising interest rates at the central bank's upcoming March meeting, if he sees more evidence that economic growth and inflation are accelerating.

The yield on the 10-year Treasury note climbed 3.7 basis points to 2.452%, while the yield on the two-year Treasury note gained 3.3 basis points to 1.219%. The yield on the 30-year bond rose 3.3 basis points to 3.056%. Bond yields rise as prices fall.

Over the past few weeks, Federal Reserve Chairwoman Janet Yellen and a host of other Fed officials have intimated that an interest-rate increasethe policy-setting Federal Open Market Committee's meeting on March 14-15 remains on the table. Their remarks contrasted with the perceived dovish tone from the central bank's most recent monetary policy outlook, released in January.

However, Fed-funds futures, which are used by investors to place bets on the future path of interest rates, are presently pricing in a less than 20% chance of a March hike, according to data provided by the CME Group.

Cleveland Fed President Loretta Mester also struck a hawkish tone, meaning she endorsed a path of raising rates sooner than later, in remarks delivered over the weekend. But her words carried less weight because she's not a voting member of the central bank's interest-rate setting committee.

But the increase in yields over the past week suggests that "people are starting to believe that March is back on the table," said Kevin Nicholson, chief market strategists at RiverFront Investment Group.

On the policy front, recent reports suggest that President Donald Trump's efforts to pass corporate tax reform have met with heavy opposition from retail lobbying groups and some Republican senators, (https://www.wsj.com/articles/as-tax-debate-heats-up-lawmakers-struggle-to-think-of-a-plan-b-1487327400) according to a Friday report in The Wall Street Journal.

Treasury yields shot higher after Trump's unexpected electoral victory partly due to the expectation that his economic policies would cause inflation to accelerate. Typically, when investors expect prices to rise during the lifespan of a bond, they demand a higher yield to offset them.

In Europe, government-bond yields rose after the eurozone composite purchasing managers index for February came in at its highest level since April 2011, a sign that economic growth is picking up, according to a research note from Capital Economics.

The yield on the 10-year German bund rose 2.5 basis points to 0.324%, while the yield on the 10-year French bond rose 5.2 basis points to 1.106%. The yield on the 10-year Italian bond rose 2.9 basis points to 2.208%.

(END) Dow Jones Newswires

February 21, 2017 08:46 ET (13:46 GMT)