Treasury Yields Rise Most in 6 Weeks as Data Back Higher Rates

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Treasury yields gained the most in six weeks as a better-than-forecast report on housing supported the view that the Federal Reserve would raise interest rates this year.

U.S. 10-year notes fell for a third day, the longest skid since February, as negotiators moved closer to resolving Greece’s financial crisis, drying up haven demand. Treasuries were also pressured after Bank of England officials said inflation could pick up more quickly than expected. Fed officials want to see inflation reach 2 percent before they raise borrowing costs.

“It could be a bit of a signal that we’re getting a little bit of a rebound effect” after weak first-quarter data attributed in part to a brutal U.S. winter, said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stanford, Connecticut. “That would be negative for the Treasury market.”

Treasury 10-year yields rose seven basis points, or 0.07 percentage point, to 1.98 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data. That’s the biggest rise since March 6, when a stronger-than-expected report on February job creation sent yields soaring 13 basis points. The price of the benchmark 2 percent note due in February 2025 fell 20/32, or $6.25 per $1,000 face value, to 100 6/32.

Trading Range

Yields surged as house closings, which usually take place a month or two after a contract is signed, increased 6.1 percent to a 5.19 million annualized rate last month, figures showed Wednesday in Washington. The median forecast of economists surveyed by Bloomberg projected sales would increase to a 5.03 million rate.

The report added to a conflicting mix of recent data, with consumer confidence and prices firming in the second quarter even as hiring slumped in March.

“We’d been stuck in this range for a while,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “We went through a slowdown in the first quarter and things are looking up for the second quarter.”

Earlier, Treasuries dropped as Greece won access to more emergency funding for its banks. Optimism surrounding Greece’s debt negotiations narrowed the difference between the yields of government bonds in Spain and Italy, which have also struggled with heavy debt loads and slow economic growth, versus those of the U.S., Germany and the U.K.

Going Peripheral

“We’re getting very close to this issue with Greece settling,” said Thomas di Galoma, head of fixed-income rates and credit at ED&F Man Capital Markets in New York. “People are leaving core bonds -- gilts and bunds -- and they’re going into the peripheral” countries, he said.

German yields at record lows had prompted Janus Capital Group Inc.’s Bill Gross to call bunds the “short of lifetime.” To which Goldman Sachs Group Inc.’s Abby Joseph Cohen, in answer to a Bloomberg question, said that she’s found no 10-year government bond that offers value.

On Wednesday, minutes from the Bank of England’s latest meeting indicated that officials see risk of inflation picking up faster than expected, which could prompt them to raise rates even as the ECB continues its stimulus efforts.

Now, with the Fed broadly expected to raise interest rates from virtually zero before the end of the year, there could be more pain ahead for Treasuries. That’s the opinion of JPMorgan Chase & Co. clients, who in the latest monthly survey pushed bearish bets on Treasuries to the most six months.

“We all know the Fed is going to be raising rates,” said Donald Ellenberger, who oversees about $10 billion as head of multi-sector strategies at Federated Investors in Pittsburgh. “Pressure from Europe is being offset by pressure from the upcoming rate increase.”

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