The 10-year U.S. Treasury yield topped the 1.49% level on Thursday morning, its highest level in more than a year.
The yield on the benchmark 10-year Treasury note climbed to 1.494%, its highest level since Feb. 21, 2020. It was up about 10 basis points on the session. A basis point is equal to 0.01%. The yield on the 30-year Treasury bond rose to 2.317%. Yields move inversely to prices.
The move higher in rates is unnerving investors fearing it could be driven by inflation rather than economic recovery. The 10-year yield ended January at 1.09%. It closed 2020 well under 1%. So it’s moved more than a half percentage point in under two months, quite rapid for the bond market and relative to rates at these historically low levels.
“To be sure, if bond yields continue to rise and there is a smooth rotation out of growth and defensive stocks into value and cyclical stocks, the Fed will remain sanguine,” strategist Albert Edwards of Societe Generale said in a note. “But the risk is growing that with so many bubbles blown by the Fed something will burst soon.”
Market-based measures continue to show signs of inflation pressures.
Though consumer prices were up just 1.4% from a year ago in January, recent indicators of retail sales, durable goods purchases and service sector prices have shown inflation in the pipeline. The 5-year breakeven rate, an indicator of the bond market’s expectations for inflation, rose to 2.38% Wednesday, its highest level since before the financial crisis of 2008.
Still, policymakers continue to downplay the possibility of troublesome inflation ahead as the U.S. recovers from the Covid-19 pandemic.
“We could have a surge in spending as the economy reopens. We don’t expect that to be a persistent longer-term force, so while you could see prices move up that’s a different thing from persistent high inflation, which we do not expect,” Federal Reserve Chairman Jerome Powell said during a Senate committee hearing Wednesday.
Some strong economic data boosted yields further on Thursday. Weekly data for new unemployment insurance claims came in at 730,000, below the 845,000 new claims expected by economists surveyed by Dow Jones. Data for durable goods also came in better than expected.
An update to the fourth-quarter GDP growth estimate came in at 4.1%, slightly above the advance reading released by the Commerce Department last month.
Stocks fell to new lows for the day as yields rose. The Dow was last down more than 100 points.
Pending home sales data for January showed a 2.8% decline compared with the previous month, missing estimates.
The Federal Reserve’s Vice Chair for Supervision Randal Quarles is scheduled to talk at the Atlanta Fed’s 2021 banking outlook conference at 11:10 a.m. ET.
Auctions will be held Thursday for $30 billion of 4-week bills, $35 billion of 8-week bills and $62 billion of 7-year notes.
— CNBC’s Patti Domm, Maggie Fitzgerald, Jeff Cox and Pippa Stevens contributed to this report.
