By Min Zeng

The bond market pulled back broadly Monday after its biggest weekly price gains since July, as some investors sold bonds to hedge against the risk of a Federal Reserve interest-rate increase next month.

Traders said one catalyst was comments from Federal Reserve Bank of Dallas President Robert Kaplan, who votes on interest rate decisions this year. Speaking at the University of Oklahoma, Mr. Kaplan said he feels it is better to raise those rates "sooner rather than later."

The adjustments in the bond market came as investors await President Donald Trump's speech before a joint session of Congress late Tuesday and remarks by Fed Chairwoman Janet Yellen's scheduled for Friday. Both are likely to affect global asset allocation.

The yield on the benchmark 10-year Treasury note was recently at 2.356%, according to Tradeweb. It ticked up from 2.317% Friday, which was the lowest close since Nov 29. Yields rise as bond prices fall.

Shorter-dated Treasury notes bore the brunt of the selling pressure. The yield on the two-year note, highly sensitive to the Fed's policy outlook, was 1.196%, compared with 1.145% Friday.

Fed-funds futures, used by investors to wager on the Fed's interest-rate policy outlook, showed Monday 38% odds for the Fed to raise rates by its March 14-15 meeting, according to data from the CME Group. That was up from 27% Friday.

The recent odds still point to skepticism that the Fed could act so soon given the uncertainty surrounding U.S. fiscal stimulus as well as political risk in Europe. Yet the uptick suggests some investors are hedging their bets given the recent warning by several officials -- including Ms. Yellen -- that investors shouldn't rule out a rate increase in March.

"It seems like the market believes that March is indeed live," said Mark Cabana, head of U.S. short-rates strategy at Bank of America Merrill Lynch.

Ms. Yellen's speech Friday will be her last chance to guide market expectations before the traditional blackout period when policy makers refrain from making public comments leading into their March meeting.

One key datapoint to shape market expectation over the timing of a rate increase is the nonfarm jobs report due March 10.

Demand for bonds as a haven asset eased on Monday as polls over the weekend deflated some concerns that Marine Le Pen, far-right candidate for the French presidential race, may win. Ms. Le Pen has campaigned to take France out of the eurozone. Investors are worried that a so-called Frexit may threaten Europe's monetary union and generate instability for global markets.

U.S. government bond prices have strengthened this year even as the Dow Jones Industrial Average has soared by more than 1,000 points. This is a shift from late last year when bond prices sank and stocks rallied, reflecting investors' optimism toward a stronger economy and higher inflation driven by fiscal stimulus expectations.

The 10-year Treasury yield has fallen from 2.6% in mid-December, which was the highest since September 2014. Last week, the yield fell by about 0.11 percentage point, the steepest weekly drop since July 29.

"Markets seem to be pricing in different scenarios with the bond market more skeptical than various other markets," said Russ Certo, managing director of rates trading at Brean Capital LLC.

In his address to Congress, Mr. Trump is expected to emphasize two of his top legislative priorities: simplifying the tax code and dismantling the Affordable Care Act and replacing it with something else, White House officials said Sunday.

Analysts say yields may fall again if Mr. Trump disappoints investors looking for more details of his fiscal outlook.

The Bank of America Merrill Lynch MOVE index, which measures implied Treasury bond price swings based on options, suggested investors won't bet on a swift rise in yields any time soon.

The index settled at 69.9, down from a recent peak of 89.2178 in mid November. A lower reading suggests investors expect smaller price swings or a relatively tight trading band for yields.

The 10-year Treasury yield has been trading between 2.3% and 2.6% since mid-December.

Write to Min Zeng at min.zeng@wsj.com

(END) Dow Jones Newswires

February 27, 2017 14:16 ET (19:16 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.