A brightening economic outlook is weighing heavily on U.S. government bonds, and the prospect of looser fiscal policy under Donald Trump isn't the only factor behind the optimism.

Bond markets were hit by a fresh wave of selling Wednesday after the Commerce Department said orders for durable goods rose 4.8% in October from a month earlier, the fastest pace in a year and well above the 2.7% gain predicted by economists surveyed by The Wall Street Journal.

Bonds have sold off sharply since Donald Trump's victory in the Nov. 8presidential election, as investors respond to the increased chances of fiscal stimulus next year.

Investors have calculated that large tax cuts and increased infrastructure spending could boost growth and inflation as well as increase the supply of government bonds, all of which would erode the value of existing government debt.

Though some have questioned whether the severity of the selloff has been warranted given the unpredictable nature of government policy, a solid run of economic data has helped support the move.

In addition to the durable goods report, recent data highlights include the best two-month stretch of retail sales in at least two years, the fastest monthly pace of housing starts since 2007 and better-than-expected monthly wage growth for workers.

If the bond market has already priced in an interest-rate increase by the Federal Reserve in December, economic data still matters for the "pricing in of next year's hikes," said Priya Misra, head of global rates strategy at TD Securities in New York.

Recent data is a "good sign, because you're already running at close to potential GDP" so the potential for fiscal stimulus just creates "more room for upside," she said.

The yield on the benchmark 10-year Treasury note settled Wednesday at 2.355%, up from 2.319% Tuesday and 1.867% on Election Day.

Yields on European government bonds also moved higher. The 10-year German bund yield rose to 0.259% from 0.231% Tuesday, while the 10-year U.K. bond yield climbed to 1.451% from 1.391%, according to Tradeweb.

Yields rise when bond prices fall.

As expected, minutes from the Fed's Nov. 1-2 meeting released Wednesday showed officials believed an interest-rate increase was possible "relatively soon" barring a change in the economic outlook.

Wednesday's selling was felt across the Treasury yield curve, with yields on shorter-term and longer-term bonds allrising. The yield on the 30-year bond, which is especially sensitive to changes in inflation expectations, reached 3.089%, its highest intraday level since early Dec. 2015, before sliding back down to 3.022%.

The 30-year bond yield has closed above 3% for four consecutive days, the longest streak since it Nov. 2015, when it remained above that threshold for 13 days.

There were some indications Wednesday of higher bond yields starting to bring back buyers. Bonds were under intense pressure early in the day ahead of a $28 billion sale of seven-year Treasury notes. But prices ticked up after the auction, which drew strong interest from indirect bidders in particular, hinting at demand from overseas.

Before the release of the durable goods report, government bonds had already sold off in Europe amid speculation that the European Central Bank could lend out more of its large stockpile of government bonds in an effort to provide more collateral for short-term lending among financial institutions.

Such a move wouldn't mean that the central bank would have to scale back its current bond-buying program, which expires in March and should be reviewed at the ECB's December policy meeting. But its prospect adds to investors' concerns that a larger volume of European bonds could end up in circulation. If executed, it could also make it easier for traders to short government debt, analysts said.

While bond yields remain low by historical standards, their sharp recent rise has inflected pain on investors.

The Treasury bond market has posted a negative 2.52% return -- including bond price gains and interest payments -- this month through Tuesday, according to data from Bloomberg Barclays U.S. Treasury index. For the year, the index has still logged a 1.3% return.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

November 24, 2016 02:05 ET (07:05 GMT)

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