Rising selling in long-end treasuries pushed yields to new multi-year highs on Thursday, with the benchmark 10-year rate firming up over 3% as trading flows favored a steeper curve and concerns over inflation. shattered the bond market.
It gained 16 basis points in 10-years, just shy of 3.10%, as the market finally moved beyond the 3% range that has been tested for four straight trading sessions. The yield on the 30-year bond rose 16 basis points to nearly 3.19%, its highest level since December 2018. Short-end yields also rose, albeit lower, from Wednesday, part of a move prompted by the Federal Reserve. meeting and its results.
Higher jumps in long-term yields matter for the broader economy as they affect borrowing costs for companies and homeowners. Before the latest Treasury selloff, the average 30-year US mortgage rate had climbed to 5.27%, the highest rate since 2009.
Selling pressure in long-term yields, reflecting expectations of economic growth, inflation and an eventual trajectory of central bank policy rates, was not confined to the US Treasury market. Canada’s 10-year yields rose to 3% for the first time since 2011, while Australian bond yields rose more than 15 basis points in a set of benchmarks earlier. Britain was an outsider, with gilt yields falling as the Bank of England raised rates to their highest level since 2009, warning that the British economy faced rising recession risks and double-digit inflation .
More policy-sensitive Treasury yields such as stable performance in two years also maintained a strong trend in the US curve. That business shift began when Fed Chairman Jay Powell poured cold water on the central bank, considering a more aggressive three-quarter point hike in upcoming policy meetings.
“Just taking 75 basis points off the table in a general sense doesn’t seem aggressive enough to really beat inflation,” said James Camp, director of fixed-income at Eagle Asset Management. Carry forward the 10-year yield through 3.23%. This is close to the peak seen in late 2018 when the Fed was first tightening policy.
Also on the minds of bond traders is the release of April jobs data on Friday, which is expected to show solid growth and wage pressure running at a 5.5% annualized pace. Then comes consumer-price index data next week that will coincide with the sale of new 10- and 30-year Treasuries, an environment that sees bond traders pushing prices lower, so loans will be at higher fixed-rate rates. Comes with coupon.
The crowd conditions were being tested in the popular Curve Flattener trades as the long-end was sold out. The difference between 2- and 10-year yields was up 0.36 percentage points to 7.5 basis points, up from about 0.17 percentage points in the last 24 hours before the Fed meeting ended. Curve trading has become volatile with a gap of 2-10 years last month, reaching a peak of 0.43 percentage points and then falling below 0.2 percentage points later this week.
According to Citigroup, long-term positions through Treasury futures have shown a substantial load of trades, which favor a 2-10 year curve. This is seen to make the market vulnerable to counter-trend bouts as well as clearing crowded bets.
The current level of short-dated yields reflects expectations of another 50 basis point rate hike by September. Conversely, longer-term yields continued to be under pressure and were driven by a renewed increase in real, or inflation-adjusted returns. The 10-year real yield extended this week’s increase above zero and rose 17 basis points to 0.22%. In contrast, the initial rise in the break-even rate on 10-year inflation-protected securities was fading.
“The curve is steep, which is telling you the Fed isn’t doing enough,” Andrew Brenner, head of international fixed income at NatAlliance Securities, said in a note. “It could be going to the high end of the year, trying to send a message to Powell. And that’s what we continue to say at every Fed meeting, about 18 hours after the actual market Fed announcement.” begins.”
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