The yield on the 10-year U.S. Treasury note swept further beyond the 3% handle on Wednesday, notching a level not seen since late December of 2013, as traders increasingly bet the Federal Reserve will have to raise interest rates more aggressively than the two or three more times Wall Street had anticipated in 2018.
What are Treasurys doing?
The benchmark 10-year Treasury note yield rose 4.3 basis points to 3.026%, notching its highest level since Dec. 31, 2013, according to WSJ Market Data Group. The benchmark would have to push above 3.047% to match its highest level since July 2011, according to Tradeweb data. According to WSJ Data, any level above 3.0299% would represent a roughly seven-year peak.
The 2-year note yield added 2.2 basis points to 2.488%, holding around its highest level since around August 2008, while the rate on the 30-year bond climbed 4.3 basis points to 3.211%. That level only represents the so-called long-bond yield’s loftiest since Feb. 21.
Bond prices rise as yields fall.
What is driving the market?
U.S. interest rates have been steadily moving higher over the past few weeks on growing speculation rising inflation expectations will push the Federal Reserve to hike more aggressively.
No policy changes are expected at the Fed meeting next week, but traders are almost fully pricing in a rate rise in June and another in September, according to the CME FedWatch Tool.
The central bank in March raised rates as expected and signaled two more hikes this year, but there has been lots of debate whether a total of four rate rises in 2018 would be more appropriate.
What are strategists saying?
“We are still skeptical as to whether a move above the psychological 3% level can be sustained. Concerns of higher inflation and faster rate increases by the Fed can also be translated as fears for higher borrowing costs for companies, which could erode their profitability,” said Charalambos Pissouros, senior market analyst at JFD Brokers, in a note.
“Something like that could prompt investors to abandon the equity market and turn their heads to the bond market in search for returns. Increasing demand for bonds could push prices up and consequently, yields back down,” he added.