By Daniel Kruger
U.S. government bond prices fell for a third consecutive session after a report showed producer prices unexpectedly rose last month.
The yield on the benchmark 10-year note settled at 1.733% compared with 1.706% Tuesday, the highest in more than five weeks. The yield had reached a three-year low of 1.456% a week ago.
Yields, which rise when bond prices decline, climbed after the Labor Department said Wednesday that the producer-price index rose 0.1% in August, more than economists surveyed by The Wall Street Journal expected. Faster inflation is a threat to the value of bonds because it erodes the future value of their fixed interest and principal payments.
The recent rise in yields has been fueled by fresh waves of government- and corporate-bond sales. Some investors said that steady signs of consumer confidence and wage gains could encourage the Federal Reserve to take a more gradual approach to reducing interest rates through the end of the year than had been previously expected.
"There's a lot of room for central banks to disappoint," said Sean Simko, head of global fixed-income management at SEI Investments.
Federal-funds futures, which investors use to bet on the path of central bank monetary policy, show an 11% probability that officials will hold rates steady next week and an 89% chance of a quarter-point reduction. A week ago, investors assigned an 11% probability to a half-point rate cut, with the balance of bets favoring a quarter-point reduction.
The dollar rose Wednesday, climbing 0.3% against the euro to a recent $1.1010, supported by the rise in producer prices and the shift in expectations about the Fed's course of rate decisions. The WSJ Dollar Index rose 0.2% to a recent 91.45.
Write to Daniel Kruger at Daniel.Kruger@wsj.com