Treasury 10-year notes gained last week as data showed U.S. retail sales rose less than forecast and consumer confidence fell to a five-month low.

At 1.56 percent, yields on five-year securities compare with the low this year of 0.64 percent on May 1 and a high of 1.86 percent on Sept. 6. Two-year Treasuries yielded 0.38 percent after touching 0.53 percent on Sept. 6, the highest level since 2011 and up from as low as 0.19 percent on May 3.

Yield Forecasts

Ten-year yields will rise to 3.1 percent and the two-year note will be at 0.6 percent by mid-2014, according to median forecasts of 60 strategists surveyed by Bloomberg.

“The rise in short-term rates we saw earlier this month was the market pricing in a higher chance of the Fed tightening policy before late 2015,” Alex Roever, the head of U.S. interest-rate strategy at JPMorgan in Chicago, said in a Sept. 9 interview.

Futures traders were pricing in a 62.9 percent probability last week that the Fed will raise rates by January 2015. On May 1, that chance was 17.8 percent.

JPMorgan’s model shows the end of all Fed bond buying would lift 10-year note yields by 25 basis points, which the firm says is already priced into the market. If the Fed’s forward guidance was ended, meaning the timing of the first benchmark rate increase was moved forward to today, it would lift yields by 45 basis points, the model indicates.

Taper Timing

“Markets have been fixated on the timing of the tapering of bond purchases, but since the June Federal Open Market Committee meeting, movements in yield volatility show evidence that the efficacy of forward guidance has been declining,” Brian Smedley, an interest-rate strategist at Bank of America Corp. in New York, said in a Sept. 6 telephone interview.

For the first time since July 2011, one option measure of the perceived degree of future changes in swap rates, known as normalized volatility, shows traders are pricing in greater fluctuations in five-year rates relative to 10-year yields. Movements in swap rates typically mirror trends in Treasuries.