The 10-year U.S. Treasury yield hits its highest level since January of last year
A key measure of long-term borrowing costs in the United States hit its highest level on Tuesday since the early days of the coronavirus crisis in the penultimate trading session of a brutal quarter for bonds of ‘World states.
The 10-year Treasury yield rose 0.06 percentage points from Monday’s closing level to 1.77%, the highest point since January 2020, according to Bloomberg data, before rebounding for trade at 1.72%.
The new wave of volatility came as investors weighed in optimism over the vaccine rollout in the United States and another plan to boost fiscal stimulus.
U.S. bond markets have led to a global decline in public debt since January as investors feared the Federal Reserve could allow the economy to run at full capacity, with huge government spending combined with monetary stimulus to make increase inflation.
A large Bloomberg Barclays index of government-issued debt in developed markets around the world has fallen 5% year-to-date on a total return basis, posting four consecutive quarters of increases.
“The curve needs to reassess for higher inflation and a higher growth regime,” said Antoine Bouvet, senior rate strategist at ING.
President Joe Biden on Monday pledged that by mid-April 90% of American adults would be eligible for the Covid-19 vaccine and would have access to a vaccination site within eight kilometers of their home. The president will travel to Pittsburgh, Pa. On Wednesday to outline plans for a $ 3 billion infrastructure package, which comes after this month’s $ 1.9 billion budget stimulus bill.
Rupert Thompson, chief investment officer of wealth manager Kingswood, said the “massive” scale of stimulus measures in the United States and around the world had caused “great nervousness about inflation and was at the root of the the recent sale of government bonds ”.
The US five-year note, which suffered less from sales than longer maturities this year, was hit by Tuesday’s move. The five-year yield hit its highest level since March 2020 at 0.94%, after rising 0.08 percentage points since the start of the week.
Bouvet said the low five- and seven-year maturities reflected investor concerns that the Fed would raise interest rates earlier than expected if above-target inflation called into question the ultra-flexible policy stance of the central bank. “No matter what warnings we get from the Fed, at some point they will have to raise rates,” he added.
European government debt was also under pressure on Monday, with German 10-year Bund yields hitting their highest level in more than a week at minus 0.27%. UK 10-year gilts yielded 0.84% from 0.74% earlier in the week.
Germany’s national debt agency added € 2.5 billion to its second-quarter borrowing plans on Tuesday after Chancellor Angela Merkel’s office last week approved a fiscal boost to support economic recovery after Covid-19.
“European bond markets are being dragged higher by the movement of US Treasuries,” said Imogen Bachra, European rates strategist at NatWest Markets. She said the move likely showed a “combination of fears about an easing of forced stock liquidations and a shift in focus to the next tax package.”
The sharp swings in bond trading earlier this year rocked equity markets, particularly affecting growth stocks. The tech-rich Nasdaq Composite fell 0.3% in morning trading, while the blue-chip S&P 500 fell 0.4%, also dragged down by tech groups.