Treasury yields spike to highest in over a year as investors weigh inflation concerns against recovery prospects

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  • The 10-year yield zoomed past 1.5% on Thursday, reaching a level not seen since February 2020
  • The pace of the selloff in bonds has “increased severely” over the past few weeks, according to a fixed-income strategist.
  • The selloff comes as Congress is set to vote on a $1.9 trillion stimulus package 
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The yield on the US 10-year Treasury note surged to its highest in more than a year, with the rapid rise stoked by investors continuing to price in economic recovery expectations and related expectations for a pickup in inflation.

The 10-year yield hit as high as 1.545%, punching above 1.5% for the first time since February 21, 2020. The move came just a day after it pushed past 1.40%.

“It’s been a sharp selloff and what we’ve been talking about is how the pace of the selloff has increased severely over the last two or three weeks,” Scott Buchta, head of fixed income strategy at Brean Capital, told Insider on Thursday. Yields rise when bond prices fall.

“We’re probably going up into the 170s, 180s at this point,” in terms of the 10-year yield, he said.

Investors are seeing signs that the domestic and global economy are on course for growth this year after falling into recession in 2020 as the COVID-19 outbreak spread. This has fueled expectations for an increase in inflation.

The 10-year breakeven inflation rate, a gauge of the market’s inflation expectations, was at 2.17%. The breakeven rate is the difference in yield between 10-year Treasuries and 10-year Treasury Inflation-Protected Securities, or TIPS. That rate recently reached its highest level since 2014, according to Bloomberg data. 

One of the worries in the bond market is centered on the financial aid package that US lawmakers are expected to begin voting on during their session on Friday.

“How much stimulus can the market and the economy absorb?,” said Buchta. “There’s growing concern about the impact that additional supply could have on the market should Congress force through a $1.9 trillion stimulus package that may be too big for the economy and the markets to absorb.”

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