2-year Treasury yield ends at highest level in three months ahead of this week’s PCE inflation data

What happened

• The yield on the 2-year Treasury
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  rose 5.1 basis points to 4.738%, from 4.687% on Friday. Monday’s level is the highest since Nov. 27, based on 3 p.m. Eastern time figures from Dow Jones Market Data.

• The yield on the 10-year Treasury
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  advanced 4 basis points to 4.298%, from a one-week low of 4.258% on Friday.

• The yield on the 30-year Treasury
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  rose 3.9 basis points to 4.418%, from 4.379% on Friday.

What drove markets

Investors were looking ahead to Wednesday, when the first revision of fourth-quarter U.S. gross domestic product is set to come out, and to Thursday’s release of the personal-consumption expenditures price index for last month.

Analysts expect the core PCE price index, the Federal Reserve’s preferred inflation gauge, to be at or above economists’ median estimate of 0.4% for January, given stronger-than-expected consumer-price index and producer-price index reports for the same month.

U.S. data released on Monday showed that new-home sales came in below expectations at a seasonally adjusted rate of 661,000 in January, versus 651,000 in the prior month. Economists polled by the Wall Street Journal had expected to see a 680,000 rate.

Meanwhile, Treasury’s record-size $64 billion sale of five-year notes drew somewhat middling results Monday, according to Lawrence Gillum, the Charlotte, N.C.-based chief fixed-income strategist for broker-dealers for LPL Financial. The auction followed an earlier $63 billion sale of two-year notes in the morning, which produced decent results, he said.

What strategists are saying

“The market remains expectant about the final impact on PCE prices following hot January CPI and PPI inflation,” said Oscar Munoz, chief U.S. macroeconomic strategist for TD Securities. In a note, Munoz wrote that “TD expects those robust increases to result in a solid 0.36% [month-over-month] jump for the core PCE. The PCE’s supercore likely also surged but by an even stronger 0.55%.”