By Sam Goldfarb and Daniel Kruger 

U.S. government bond prices fell again Tuesday, pushing the 10-year Treasury note's yield closer to a seven-year high as investors prepared for Wednesday's Federal Reserve meeting and weighed the potential for a global move toward tighter monetary policy.

In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 3.100%, according to Tradeweb, compared with 3.078% Monday. The yield's intraday high this year is 3.119%, according to Tradeweb, while its closing peak is 3.109% -- both high-water marks dating back to July 2011.

Yields, which rise when bond prices fall, have been climbing all month as investors have gained confidence about the economic outlook, reassured by developments in emerging markets and Italy, which were at the center of their concerns just a month ago.

This week, investors have had further reason to sell bonds as European Central Bank President Mario Draghi delivered an upbeat assessment of the eurozone economy and confirmed a plan, announced in June, to end the ECB's EUR2.5 trillion ($2.95 trillion) bond-buying program in December.

Investors have also been contending with another round of Treasury debt auctions as well as Wednesday's Fed meeting, where policy makers are widely expected to raise interest rates for a third time this year.

Meanwhile, U.S. economic data has remained strong, encouraging bets that the Fed will keep raising interest rates and leading to slightly higher expectations for inflation, which is a main threat to government bonds because it erodes the purchasing power of their fixed returns.

"On the surface it looks like the U.S. is firing on all cylinders," said Jack McIntyre, who manages bond portfolios at Brandywine Global Investment Management. "You're not supposed to own bonds in that environment."

Rising Treasury yields are important because they serve as a reference rate for lending throughout the economy, influencing borrowing costs for homes and cars, or the price of debt for credit-card holders and businesses.

In recent weeks, central bankers in Argentina and Turkey have raised interest rates to reign in rapid inflation, and there have been signs that Italy's new populist government can deliver its first budget without driving a rift with the European Union.

There is at the moment "a bit of a global move to higher rates," said Ray Remy, head of fixed-income trading in New York at Daiwa Capital Markets America Inc.

As investors have sold Treasurys, they have also been selling other government bonds such as German bunds, and as German yields move higher, there is added pressure on U.S. yields, Mr. Remy said.

Investors have also gradually shed some of their concerns about trade disputes, such as the one between the U.S. and China, which has only escalated this month.

So far, there has been little sign of the rhetoric or reality of trade tensions leading to a slowdown in the global economy, said Ilya Gofshteyn, a strategist at Standard Chartered Bank.

"Thus far it has not led to some of the Armageddon some people thought it would."

(END) Dow Jones Newswires

September 25, 2018 11:13 ET (15:13 GMT)

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