U.S. 10-year bond yields rise to highest in 5 months on Yellen’s hawkish comments

The U.S. 10-year Treasury yields hit highest in last five months Monday following hawkish comments from the Federal Reserve Chair Janet Yellen. Also, investors sell off treasuries as rebound in Chinese inflation data eased concerns about sluggish growth from the world's second largest economy amid solid U.S. retail sales and inflation data.

The yield on the benchmark 10-year Treasury note rose 2 basis points to 1.81 percent, the yield on 5-year bond jumped 1 basis point to 1.288 percent and the yield on short-term 2-year note climbed 1/2 basis point to 0.835 percent by 12:00 GMT.

The Federal Reserve Chair Yellen indicated that the Fed may need to promote a “high-pressure” economy in order to fully recover. Yellen added that increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending, especially if accompanied by reduced uncertainty about future prospects.

Additionally, Yellen contended that a tight labour market might draw in potential workers who would otherwise sit on the sidelines and encourage job-to-job transitions that could also lead to more efficient - and, hence, more productive - job matches. Yellen furthered that strong demand could potentially yield significant productivity.

Moreover, the September US advance retail sales report revealed an overall +0.6 percent m/m result, versus the revised -0.2 percent m/m reading that occurred in August (previous was -0.3 percent m/m), in line with expectations for a +0.6 percent m/m reading.

Alongside the stronger headline reading, we continue to anticipate broader improvement in consumer activity in the coming months, likely to come hand-in-hand with improvement in employment conditions.

Lastly, markets now look ahead to a greater flow of data in the week ahead, highlighted by consumer prices, housing starts/building permits, Empire manufacturing and Philadelphia Fed manufacturing releases.

Meanwhile, the S&P 500 Futures traded nearly flat at 2,125 by 12:20 GMT.