Treasury yields extend climb to fresh multiyear highs as traders await data
Treasury prices extended a slump on Thursday, further driving yields to multiyear highs, as bond investors sold government paper on growing signs of rising inflation that could accelerate bearish rate increases for bonds.
Investors also awaited a raft of reports that may offer more clues about inflation, a day after the consumer-price index in January rose at the fastest monthly pace in about five months.
How are Treasurys performing?
The 10-year Treasury note yield TMUBMUSD30Y, +0.21% added 2.1 basis points to 2.934%, extending its highest yield level since around January 2014, according to WSJ Market Data Group.
The two-year note yield TMUBMUSD02Y, +1.34% the most sensitive to shifting expectations for Fed policy, picked up 1.7 basis points to 2.189%, after surging by 6.8 basis points on Wednesday to market its largest one-day yield rise since March 2, 2017 and its loftiest level since Sept. 12, 2008, three days before the collapse of Lehman Brothers during the start of the financial crisis.
The yield for the 30-year bond TMUBMUSD30Y, +0.21% advanced by 1.1 basis point to 3.187%.
Treasury yields and prices move in the opposite directions.
What’s driving the market?
Inflation remains the main focus for bond investors after the consumer-price index in January rose 0.5%, above the 0.4% forecast by economists polled by MarketWatch. The core gauge, which strips out volatile food and energy prices, rose 0.3%, higher than the 0.2% expected.
Rising inflation over the past several months has spooked bond investors, which have enjoyed a period of ultralow rates supported by the Federal Reserve. However, signs of rising prices risk ending a prolonged bull market in the bond market because the U.S. central bank may feel compelled to lift interest rates at a faster clip—four rate increases rather than three expected—amid reemergent inflation.
Accelerating borrowing costs and inflation also have been a source of consternation for stocks, pushing the Dow Jones Industrial Average DJIA, +1.03% the S&P 500 index SPX, +1.34% and the Nasdaq Composite Index COMP, +1.86% down 10% from a recent peak in January. However, the stock market mostly shook off those worries to push higher for a fourth straight session.
Still, climbing yields has the potential to create further friction in markets as investors weigh bonds offering comparatively more attractive yields against relatively riskier stocks.
Meanwhile, economists at the Cleveland Federal Reserve projected that core CPI, which came in at 1.8% on Wednesday, could rise to 2.8%, with headline prices rising to 3.4% in this first quarter. That would put inflation well above the Fed’s 2% annual target.
What other data are in focus?
- A report on weekly jobless claims is slated to hit at 8:30 a.m. Eastern Time, with economists, with economists polled by MarketWatch forecasting 230,000 claims.
- A February reading for producer prices
- Empire State Manufacturing survey is due at 8:30 a.m.
- Philadelphia Federal Reserve’s business-outlook survey also is due at 8:30 a.m.
- A January report on industrial production is scheduled to arrive at 9:15 a.m., with a forecast for a rise of 0.3%
- February figure for a housing-market index is slated to come at 10 a.m. Eastern.
What are strategists and traders saying?
“So far, I still see three rate increases in 2018 as the base case scenario and, in my opinion, this had already been baked into equity prices after last week’s selloff,” said Hussein Sayed, chief market strategist at FXTM, in a Thursday research note.
“The sell-off in financial markets, which was triggered by a reassessment of the outlook for US inflation and interest rates, has meant that government bond yields have jumped. But these recent moves are not yet a major cause for concern. Monetary aggregates and bank lending are still expanding steadily, and credit spreads on junk bonds remain close to post-crisis lows,” wrote strategists at Capital Economics in a Thursday note.
What other assets are in focus?
The yield of the 10-year German bond TMBMKDE-10Y, +3.81% known as the bund, was at 0.787%, around a two-year high, versus 0.754% in the prior session, with European equity markets SXXP, +0.67% also on the rise.