U.S. Government Bonds Decline After Strong Data

U.S. government bond prices fell Tuesday after a measure of consumer sentiment rebounded in July to its highest level this year.

The yield on the benchmark 10-year Treasury note rose to a recent 2.068%, according to Tradeweb, from 2.056% Monday.

Yields, which climb when bond prices fall, rose after the Conference Board, a private research group, said Tuesday its index of consumer confidence rose to 135.7 in July, up from 124.3 in June. That was higher than the reading of 124.8 that economists surveyed by The Wall Street Journal had expected.

The data suggests that Americans remain confident about the U.S. economy despite persistent trade tensions and slowing global growth.

Tuesday’s yield climb also came after two former Federal Reserve officials suggested that the central bank only needs to cut interest rates one time to sustain U.S. economic growth amid a global slowdown.

Former New York Fed President William Dudley wrote in a Bloomberg opinion article that “the case for lowering rates is less compelling now than it was” given improved economic data. Former Federal Reserve Chairwoman Janet Yellen said Sunday she endorses a quarter-percentage-point cut in the central bank’s benchmark interest rate this week because of worries over global growth and low inflation, but that she didn’t see the need to do more.

The Fed is expected to cut interest rates at its meeting Wednesday for the first time since the financial crisis. Officials have said they would like to ensure the economy continues to expand and are considering taking measures to prevent lower inflation expectations to take root in the U.S. as they have in Europe and Japan.

The 10-year German government note yield fell to negative 0.446% Tuesday after the European Commission on Tuesday said its Economic Sentiment Indicator—a measure of sentiment among consumers and businesses—fell to 102.7 from 103.3 in June, its lowest level since March 2016.

Investors will be watching for Fed Chairman Jerome Powell to suggest whether officials see a need for further cuts.

The Fed could signal a readiness to cut rates further because the European Central Bank—which has held interest rates below zero since 2014, is expected to lower them further at its meeting in September—has little capacity for repeated cuts, said Jim Vogel, head of interest-rate strategy at FTN Financial.

While inflation has remained persistently below the Fed’s target of 2%, as measured by the price index for personal-consumption expenditures, the U.S. economy has continued to grow at a steady pace. That index rose 1.4% in June from the year before, according to the Commerce Department. Excluding more volatile food and energy prices, it increased 1.6%.

Federal-funds futures, used by investors to bet on central bank policy, Tuesday showed about 70% odds that the Fed will lower rates by at least another quarter-point at its September meeting and a 50% probability of an additional reduction by December.

“Not only is the Fed likely to cut rates, but the Fed is likely to cut several times,” said Thomas Graff, a bond manager at Brown Advisory.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

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