By Daniel Kruger 

U.S. government-bond prices declined Monday as stocks steadied.

The yield on the benchmark 10-year Treasury note rose to 3.163% from 3.140% Friday. Bond yields rise when prices fall.

Yields climbed as U.S. stocks calmed after notching their sharpest weekly drops in months on Friday. The fall in stocks was precipitated in part by a sharp climb in government-bond yields, which reached multiyear highs earlier this month.

The 10-year Treasury yield is roughly 0.75 percentage point higher now than it was at the end of last year. The yield on the two-year note, which settled Monday at 2.861%, has climbed almost 1 percentage point. Some analysts said that their climb is forcing investors to reassess the value of companies, while also making bonds increasingly attractive compared with stocks.

The rise in yields in recent weeks has been fueled by improving expectations for U.S. growth, along with easing of geopolitical tensions surrounding trade with Canada and Mexico. Concerns have also eased about the potential for contamination from turmoil in emerging markets, such as Argentina and Turkey.

The U.S. economy grew at a 4.2% annualized pace in the second quarter, and the Federal Reserve Bank of Atlanta's GDP Now forecast for the third quarter suggests the economy expanded at a 4% rate in the third quarter.

In one sign of investors' increasing expectations for growth, the gap between the yields on two- and 10-year government notes has widened to about 0.302 percentage point from 0.2 percentage point in August, the smallest difference since 2007. Investors closely watch the dispersion of U.S. government-bond yields because shorter-term yields have exceeded longer-term rates before each U.S. recession since at least 1975, a phenomenon is known as an inverted yield curve.

"Fundamentally, the fear of recession has died," said Michael Cloherty, head of interest-rate strategy at RBC Capital Markets.

Some analysts said economy has been supported by 2017's tax cuts, which required an increase in the amount of U.S. government debt issued this year.

The government ran a $779 billion deficit in the fiscal year that ended Sept. 30, the Treasury Department said Monday. That is the largest annual deficit in six years and 17% higher than the $666 billion deficit in fiscal 2017. As a share of gross domestic product, the deficit totaled 3.9%, up from 3.5% a year earlier and the third consecutive increase.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

(END) Dow Jones Newswires

October 15, 2018 16:51 ET (20:51 GMT)

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