Benchmark 10-year U.S. Treasury yields hit 16-year highs Monday as an agreement to avert a partial government shutdown reduced demand for the debt before key jobs data due later this week.

The U.S. Congress passed a stopgap funding bill late on Saturday with overwhelming Democratic support after Republican House Speaker Kevin McCarthy backed down from an earlier demand by his party's hardliners for a partisan bill.

The agreement takes away the risk that the release of government data will be delayed, which would have been likely to keep the Federal Reserve on the sidelines.

"If we had had a shutdown, that really would have put the Fed in a really tough spot for that November meeting," said Michael Lorizio, senior fixed income trader at Manulife Investment Management in Boston. "You would have essentially had to price out any chance of any sort of Fed action if they had no data to base their next move on."

The Fed said last month that it may raise interest rates again as it battles to bring inflation closer to its 2% annual target, and that it is likely to hold rates higher for longer. Fed Chairman Jerome Powell on Monday said that the U.S. central bank is striving to foster a sustained, strong labor market and that price stability is needed in order to achieve that.

Fed funds futures traders are pricing in a 26% chance of a rate hike in November, and a 45% likelihood of an increase by December, according to the CME Group's FedWatch Tool.

Benchmark 10-year Treasury yields reached 4.703%, the highest since October 2007. The yields also rose 48 basis points in September, the largest monthly increase in a year. Economic data will be key to when yields are likely to reverse direction, with market participants on the lookout for signs of weakness.

"Deteriorating fundamentals of the U.S. economy is what it will take for rates to materially move lower," Lorizio said. "There's reason to believe that if there is evidence of deterioration then all of a sudden U.S. Treasuries become really, really attractive at these elevated rate levels."

Analysts at JPMorgan said in a report on Friday that the U.S. economy faces "numerous headwinds" in the fourth quarter and "the Fed is most likely done tightening. Against this backdrop, Treasury yields should be finding a peak."

That said, they added, "we are cognizant that the technical forces driving yields higher over the past few weeks may not yet be behind us." This week's main economic focus is Friday's jobs report for September, which is expected to show that employers added 170,000 jobs during the month.

Data on Monday showed that U.S. manufacturing took a step further toward recovery in September as production picked up and employment rebounded. Interest rate sensitive two-year yields were last at 5.112%. They are holding below 5.202% hit on Sept. 21, the highest since July 2006. The yield curve between two-year and 10-year yields steepened to minus 42 basis points, the smallest inversion since May.