Treasury 10-year yields approached 2.5 percent for the first time since October as the global bond rout extended losses.
Yields have been rising amid speculation the Federal Reserve is poised to increase interest rates as investors wonder whether the market is at a turning point. A global selloff has sent German yields to the highest level since September and wiped out 2015 U.S. bond-market gains.
“We’re simply correcting for more realistic levels for Treasuries,” said Jeff Caughron, chief operating officer in Oklahoma City at Baker Group LP, which advises community banks and has more than $45 billion in investments. “The market is back to more fairly valued levels. We’ll continue to see a gradual uptick in yields assuming the economy continues to improve.”
The current 10-year U.S. note yield rose five basis points, or 0.05 percent, to 2.48 percent at 4:59 p.m. in New York, after rising as high as 2.49 percent, the highest since Oct. 1. The benchmark 2.125 percent note due May 2025 fell 12/32, or $3.75 per $1,000 face amount, to 96 27/32, according to Bloomberg Bond Trader prices.
U.S. debt pared its decline after a $21 billion auction of 10-year notes Wednesday attracted the most demand since December.
Treasuries due in 10 years and more have lost investors 5.7 percent this year, compared with a loss of 0.8 percent for the broader Treasury market, according to Bloomberg Bond indexes.
The global bond selloff intensified last week as U.S. job and wage growth in May beat analysts’ expectations, underpinning forecasts for the Fed to boost borrowing costs this year.
The 10-year yield is already approaching the 2.50 percent median economist forecast for the fourth quarter of the year, according to data compiled by Bloomberg. The yield on Germany’s 10-year notes rose above 1 percent Wednesday after reaching a record low of 0.049 percent on April 17.
The auctioned securities yielded 2.461 percent, compared with an average forecast of 2.489 percent in a survey of seven primary dealers. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.74, compared with an average of 2.68 at the past 10 sales.
“The auction was fairly decent in a number of ways,” said Christopher Sullivan, who oversees $2.4 billion as chief investment officer at United Nations Federal Credit Union in New York. “Yields have backed up considerably, so there’s undoubtedly those who see value in yields approaching 2.50 percent.”
The U.S. auctioned $24 billion of three-year debt on Tuesday at a yield of 1.125 percent, the highest since April 2011. It will also sell $13 billion of 30-year bonds on Thursday, the same day the Commerce Department releases a report forecast to show U.S. retail sales rose 1.2 percent in May.
“The market is building in a concession for tomorrow,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “People are anticipating a stronger retail number.”