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U.S. Treasury yields saw a steady rise in rates ignited into a surge on Thursday, putting government debt across the curve on track to mark their biggest weekly yield moves in months and in some cases years.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 1.470% rose 12.5 basis points to a 52-week high at 1.513%, based on a 3 p.m. Eastern close, marking the largest yield jump since Nov. 9. The 10-year briefly touched an intraday peak around 1.539%.
The 30-year bond yieldBX:TMUBMUSD30Y gained 6.1 basis points to 2.303% to notch its own 52-week peak amid six straight days of gains.
Meanwhile, the 2-year note rate TMUBMUSD02Y, 0.148% advanced 4.1 basis points to 0.166%, logging its sharpest one-day rise since April 6, 2020. The short-dated debt has climbed five straight sessions, matching its longest string of successive rate rises since the period ended Nov. 3.
Separately, the 5-year Treasury note TMUBMUSD05Y, 0.765% yield picked 18.7 basis points to 0.799%—the largest one day gain since Dec. 7, 2010.
Bond prices fall as yields rise.
For the week, the 10-year and 30-year bonds are on pace for their biggest weekly moves since Jan. 8, while the 2-year yield was on track for its sharpest weekly rate climb since June 5, 2020.
For the month, the 5-year and 10-year are on track for their biggest monthly advance since 2016, while the 30-year is on track for the biggest monthly yield climb since 2009, according to Tradeweb data.
The 2-year was on pace for its sharpest monthly rise since 2019.
What’s driving Treasurys?
The combination of a recovering U.S. economy, thanks to COVID vaccination efforts, trillions in fiscal relief and accommodative monetary policy, are expected to deliver the kind of inflation that hasn’t been seen since the 2008 financial crisis.
That fact has partly added to a selloff in bonds and commensurate rise in yields that has filtered through the broader market.
On top of that, some strategist said Thursday’s powerful yield surge could also be attributed to investors being caught offsides and being forced to close their bullish positions on Treasury futures, in turn, pushing rates higher.
Even before yields took fuller flight on Thursday, Australian, New Zealand, and European government bonds were weakening, with some of the bearish pressure bleeding into the U.S. Treasury bond market.
One of the big fears in the market is that the rate rise unravels the easy-lending conditions fostered by central banks, raising questions whether monetary policy makers will lean against the selloff.
The 10-year German government bond yield TMBMKDE-10Y, -0.228% was up 7.3 basis points to negative 0.22%, while the 10-year Australian bond rate TMBMKAU-10Y, 1.770% shot up 12 basis points higher to around 1.73%.
Senior Federal Reserve officials including Kansas Fed President Esther George and St. Louis Fed President James Bullard said on Thursday said they aren’t perturbed by the recent run-up in yields, which may also be off-putting to skittish investors.
Read: 3 reasons the rise in bond yields is gaining steam and rattling the stock market
Fed Chairman Jerome Powell in semiannual congressional testimony said this week that higher bond rates reflect improving economic prospects, suggesting further action from the Fed may not be forthcoming.
Investors also faced a parade of economic data. Durable goods for January jumped 3.4%, pending home sales fell 2.8% last month, and a second estimate of fourth-quarter gross domestic product, which came in at 4.1%.
Initial jobless claims fell sharply to 730,000 in the week ending Feb. 20 from 841,000, but were still elevated.
And the Treasury Department wrapped up this week’s auctions with its sale of $62 billion 7-year notes. The auction saw its worst showing in history, ‘tailing’ by 4.2 basis points. The tail is the gap between the highest yield the Treasury sold in the auction and the yield before the auction began.
What did market participants say?
“I would have said a day ago that the 10-year could’ve got to 1.50% if markets get really optimistic, but once you’re n the 1 1/4% range you’re overshooting fundamentals,” said Robert Tipp, chief investment strategist at PGIM Fixed Income, in an interview.
At the end of the day, bond investors still had to contend with the long-term structural factors that have driven interest rates and growth lower, and thus a substantial increase in inflation was likely to be temporary, said Tipp.
Ed Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle Investments, said until the Fed backs up its words with concrete actions, such as tweaking its asset purchases, yields could keep moving higher.
