Market Overview

10-year Treasury yield climbs above 1.7% for 14-month high, 30-year rate briefly tops 2.5%

The 10-year U.S. Treasury yield jumped above 1.7% on Thursday, its highest level in more than a year, despite reassurance from the Federal Reserve that it had no plans to hike interest rates anytime soon, nor taper its bond-buying program. The yield on the benchmark 10-year Treasury note was up 8 basis points to 1.719%. The yield on the 30-year Treasury bond climbed 3 basis points to 2.472%. Yields move inversely to prices. (1 basis point equals 0.01%.)

Yields retreated from their highs of the day in afternoon trading. The 10-year broke above 1.75% earlier in the session, marking its highest level since Jan. 24, 2020, when it topped out at 1.762%. This is also the first time the 30-year has traded above 2.5% since August 2019. Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, described the move as a “belated overreaction” to the Fed’s projections and Jerome Powell’s statements on Wednesday.

After the Fed’s two-day policy meeting concluded Wednesday, the central bank said it sees stronger economic growth than previously estimated, forecasting gross domestic product to rise to 6.5% in 2021. This is up from the 4.2% GDP increase forecast in December. The Fed also expects core inflation to hit 2.2% this year, but has a long-run expectation of it sticking around 2%. The central bank also indicated that it didn’t plan to hike interest rates through 2023 and that it would continue its program of buying at least $120 billion of bonds a month.

These projections reinforced the idea that the Fed is willing to let the economy run hot for a period of time to allow the U.S. to recover from the Covid pandemic. Bond investors fear this means the central bank will let inflation increase more than normal, eroding the value in bonds. Some strategists have pointed to overseas developments as a reason for Thursday’s spike in yields. The Bank of Japan is expected to widen a band around its long-term rate target, according to the Nikkei newspaper, signaling a step toward tighter policy.

Initial jobless claims for the prior week came in a worse-than-expected 770,000 on Thursday, but the Philly Fed’s manufacturing outlook survey was better than expected. Auctions were held Thursday for $40 billion of four-week bills, $40 billion of eight-week bills and $13 billion of 9-year 10-month Treasury Inflation-Protected Securities.

10-year Treasury yield climbs above 1.7% for 14-month high, 30-year rate briefly tops 2.5%, CNBC, Mar 19

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