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

The yield on the shorter-maturity debt, which is more sensitiveto the outlook for monetary policy, rose for a third day after FedBank of Kansas City President Esther George said labor-market gainsand rising inflation should prompt higher interestrates. ChairJanet Yellen speaks Friday at an annual symposium in JacksonHole, Wyoming.

Fed officials “are trying to jawbone up rates, especiallyinflation expectations,” said George Goncalves, head of U.S.interest-rates research at Nomura Securities, one of 23 primarydealers that trade with the central bank. “Rates could move alittle higher tomorrow. Not because of expectations of hikes, butmore about 'Hey, the Fed means business.'”