30-year U.S. government bond yield hits nearly 3-year high

  • Written by MarketWatch
  • Published in Economics

Treasury yields extended their weeklong climb on Thursday as higher growth and inflation expectations, along with concerns of a more aggressive Federal Reserve weighed on appetite for U.S. government bonds.

How are Treasurys performing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.51%[1] rose 1.7 basis points at 3.109%, and is up around 14 basis points for the week. That left the yield at its highest level since July. 2011. Yields and debt prices move in opposite directions.

The 30-year bond yield TMUBMUSD30Y, +0.97%[2] climbed 3.1 basis points to 3.245%, the highest since June 2015, while the short-dated two-year note yield TMUBMUSD02Y, -1.11%[3] fell 1.8 basis points to 2.571%.

Meanwhile in Italy, the yield on 10-year government paper TMBMKIT-10Y, -0.15%[4]  was little changed at 2.114%, but has risen sharply in May on renewed political worries after trading at 1.74% on May 3.

What is driving the market?

U.S. yields rose sharply this week after solid economic data rekindled speculation the Federal Reserve may have to raise interest rates more aggressively than previously expected. A strong retail sales figure[5] kick started the selloff, sending the 10-year Treasury note yield above the 3% level on Tuesday. The Conference Board’s leading economic index advanced 0.4% in March, showing the economy still had plenty of steam.

The global oil benchmark LCON8, +0.29%[6]  touched $80 a barrel after the potential return of U.S. sanctions in Iran clouded the outlook for crude production. That may be contributing to the cocktail of inflationary pressures driven by the recent tax cuts and the tightest labor market in years. The 10-year break-even inflation rate, the average market expectation for inflation over the next 10 years, rose as high as 2.21% on Thursday, close to a four-year high.

See: Brent oil prices end on calmer note after surge past $80 for first time since 2014[7]

Moreover, traders are pricing in a more aggressive rate increase trajectory this year. Trading in fed-fund futures suggests the market forecasts a greater than 50-50 chance of four or more rate increases this year, from a previous consensus of three, according to...

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