Bond Report: 10-year Treasury yield tops 2%, and 30-year hits 9-month peak, as U.S. consumer prices rise to fresh 40-year high
Treasury yields rose for a fourth straight session Thursday, with government debt selling off as the rate of U.S. inflation rose again in February to 7.9%—a fresh 40-year high, amid the Russian invasion of Ukraine.
Meanwhile, the European Central Bank was seen as being more hawkish than expected in its policy decision at its monthly meeting.
What are yields doing?
The 10-year Treasury yields
climbed 5.8 basis points to 2.008%, on a reopening basis, from 1.946% at 3 p.m. Eastern Time on Wednesday. The rate hit its highest since Feb. 16. Yields climb as prices for debt fall.
The 2-year Treasury note
rate was at 1.717%, up 4.1 basis points from 1.676% a day ago, and marking the highest finish since Sept. 19, 2019.
The 30-year Treasury bond yield
rose 9.1 basis points to 2.392%. Thursday’s trade saw the 30-year bond hit its highest level since May 13, 2021.
The spread between the 2-year and 10-year notes, known as the yield curve, stands at around 29 basis points. The shape of the yield curve is viewed as an indicator of possible recession.
What’s driving the market?
Repeating Wednesday’s action, investors sold bonds, which lifted yields as the consumer-price index rose 0.8% in the month, spurred by the higher cost of gasoline, food and housing, the government said Thursday.
The increase surpassed Wall Street’s forecast of a 0.7% gain and the surge in the cost of living in the past 12 months is the biggest since January 1982.
Meanwhile, weekly U.S. jobless benefit claims edged up 11,000 to 227,000.
“Bottom line, inflation bites, especially when wage growth is at best just keeping up and for most not doing so,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a research note.
“This said, the comparisons versus last year start to get more difficult as the February 2021 print was 1.7% and picks up to 2.6% in March and 4.2% in April and thus the rate of change should start to moderate but only by so much,” wrote Boockvar.
“Pre invasion I was of the belief that the intense supply pressures was on the cusp of easing but now it’s obviously quite uncertain,” he said, referring to the concerns about the global economic impact of Russia’s invasion of Ukraine.
Selling in debt increased after the European Central Bank said that it would leave its key deposit rate unchanged at -0.5%, but also wind down its asset purchase program at a faster pace.
U.S. stocks also ended lower, a day after a large market rally, as high-level talks in Turkey between Russia and Ukraine failed to make progress on a 24-hour cease-fire to help evacuate civilians in an ever-worsening conflict. Hopes ahead of those talks had rallied stocks and helped send yields higher.
And oil futures
ended lower Thursday, a day after global benchmark prices suffered the biggest one-day percentage decline in nearly 2 years.
Meanwhile, an auction of $20 billion in 30-year bonds saw stronger-than-expected demand, “stopping through” at 2.375%, compared with a six reopening average of 2.017%, highlighting strength of demand.
A so-called stop-through indicates when the highest yield the Treasury sold in the auction is below the highest yield expected when the auction began—the “when issued” level.