By Sara Sjolin, MarketWatch , Sunny Oh
The yield on the 10-year Treasury note touched the 3% level early Tuesday, a key psychological level for the benchmark government bond, which has endured a sustained selloff amid swirling concerns over growing inflationary pressures and a hawkish Federal Reserve that has indicated economic growth is sufficiently healthy to withstand higher rates.
What are Treasurys doing?
The benchmark 10-year Treasury note yield rose 0.9 basis points to 2.983%, after touching a four-year intraday high of 3.001%, according to Tradeweb data, marking its loftiest since January 2014. The benchmark would have to push above 3.047% to match its highest level since July 2011.
The two-year note yield added 0.8 basis points to 2.466%, compared with late Monday in New York, while the interest rate on the 30-year bond climbed 2.4 basis points to 3.167%, the highest since Feb. 27.
Bond prices rise as yields fall.
What is driving the market?
Rising inflation expectations and speculation that the Federal Reserve will be more aggressive in lifting rates are keeping Treasury yields at elevated levels. The outlook for higher consumer prices has partly been spurred by a rally in oil and metals prices, which usually feeds into higher headline inflation.
Oil prices early Tuesday rose to their highest levels since November 2014, boosted by speculation that U.S. sanctions on Iran will be put back in place in May.
That has helped stoke a modest steepening of the yield curve, with the spread between the two-year note yield and the 10-year note yield widening to 52 basis points on Tuesday from a prerecession width of 41 basis points. The yield curve, a line drawing out a bond's maturity against its yields, is widely watched as a gauge of the bond market's feelings over future economic prospects. A steepening curve tends to signify improving growth expectations, but some investors say is a much-needed snapback after the curve flattening move in the past few weeks had extended too far.
Investors say the breakthrough of the 10-year yield to 3% level could spark further selling of government bonds, but other investors have dismissed the importance of the number.
Though the 10-year yield briefly touched the 3% level, it seemed the stock market was more perturbed by the development than bond buyers. Stock-market investors have also kept a close eye on the yield level over concerns that higher borrowing costs and a higher hurdle rate could send equities tumbling. The Dow Jones Industrial Average notched its fifth straight decline, with all three benchmark equity indexes down more than 1% on Tuesday.
What are strategists saying?
Paul Donovan, chief global economist at UBS Wealth Management, in a research note said "3% is a nice round number and bond dealers are simple people who like nice round numbers. Economically, 3% is no different from 2.98%."
"Using the breakeven inflation rate on TIPS as the best measure for inflation expectations, investors are now banking on inflation approaching 2.25%. That really doesn't leave much excess yield for bond investors after inflation. So as inflation moves higher, yields move higher; and everything is pointing to higher inflation," said Bryce Doty, senior portfolio manager for Sit Fixed Income Advisors.
What data is on investors' radar?
The Case-Shiller home price index for February rose 6.3% year-over-year, close to a four-year high.
Consumer confidence rose to 128.7 in April, above the reading of 125.9 from economists polled by MarketWatch. While, new-home sales in March came in at a roaring annual pace of 694,000, well above the MarketWatch consensus of 630,000.
What are other assets doing?
The 10-year German government bond yield was mostly flat at 0.633%.