Long-maturity Treasury yields climbed on Tuesday, ahead of Georgia's runoff elections, which will determine whether Republicans keep hold of the Senate.
The yield on the benchmark 10-year Treasury note popped 5 basis points to 0.964%, while the yield on the 30-year Treasury bond moved up 6 basis points to 1.721%. Yields move inversely to prices.
Treasury yields climbed ahead of the pivotal runoff vote. If the Democrats gain control of the Senate some fear this could mean higher tax rates, but it could also lead to a bigger and faster government stimulus spending package.
"The two races are close and therefore the market is left to simply trade the results rather than price to any consensus outcome ahead of the event," Ian Lyngen, BMO's head of U.S. rates, said in a note.
The advance in yields also came after stronger-than-expected economic data.
An index of U.S. manufacturing activity rebounded to a reading of 60.7 last month, the highest level since August 2018, according to the Institute for Supply Management. A reading above 50 indicates expansion in manufacturing. Economists polled by Dow Jones had forecast the index falling to 57.0 in December.
Traders are also keeping an eye on inflation after the "breakeven" rate for 10-year inflation expectations briefly touched 2% for the first time in more than two years.
"The improvement of inflation expectations is especially encouraging in the backdrop of the lockdown headlines, and the resilience of breakevens speaks to the durability of the reflationary ambitions underpinning Treasuries at the moment," Lyngen said.
Auctions will be held Tuesday for $30 billion of 119-day bills and $30 billion of 42-day bills.