A $30 billion sale of two-year Treasuries today will result inthe highest yield in three years, according to pre-auction trading,amid speculation the Federal Reserve is moving closer to raisinginterest rates.

A gauge of expectations for consumer prices during the next 10years was near the most in five months before Fed officials speakthis week, with markets indicating a 59 percent chance they willboost interest rates by July of next year. Economists say a reporton Thursday will show the central bank's preferred measure ofinflation—the personal consumption expenditures (PCE) priceindex—rose to the highest since October 2012. The U.S. is selling$107 billion of coupon-bearing debt this week.

“The auctions this week are going to add pressure to the frontend of the curve,” said Shirley Tsai, a bond trader at Hontai LifeInsurance Co. in Taipei “This week, the core PCE is going to bereleased, and we expect this data to go higher. We also expect the10-year break-even rate to go higher gradually.”

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