Treasury two-year notes are the cheapest relative to 30-year bonds since the end of 2007, as hawkish comments from Federal Reserve officials spur speculation the central bank will increase interest rates this year. [See Figure 1, below.]

The yield on the shorter-maturity debt, which is more sensitive to the outlook for monetary policy, rose for a third day after Fed Bank of Kansas City President Esther George said labor-market gains and rising inflation should prompt higher interest rates. Chair Janet Yellen speaks Friday at an annual symposium in Jackson Hole, Wyoming.

Fed officials “are trying to jawbone up rates, especially inflation expectations,” said George Goncalves, head of U.S. interest-rates research at Nomura Securities, one of 23 primary dealers that trade with the central bank. “Rates could move a little higher tomorrow. Not because of expectations of hikes, but more about 'Hey, the Fed means business.'”