U.S. Treasury 10-Year Yield Rises to Highest Level Since 2016

• January 19 2018
• Elizabeth Stanton, Masaki Kondo

The Treasury 10-year yield rose to the highest level in more than a year, extending the selloff that’s opened 2018 in the world’s largest debt market.

The Treasury 10-year yield rose to the highest level in more than a year, extending the selloff that’s opened 2018 in the world’s largest debt market.

The yield climbed to as high as 2.6367 percent. The next level to watch is the 2016-high of 2.6394 percent, which was last exceeded in 2014.

Yields on U.S. debt have been rising on the prospects of more Federal Reserve rate hikes and increased government debt issuance to finance America’s widening budget deficit. President Donald Trump’s plan to release his infrastructure proposal as early as January and a rally in oil prices to a three-year high have also boosted growth and inflation expectations.

“Rising oil and equities have fanned speculation that break-even inflation will climb,” said Makoto Noji, chief foreign-exchange and foreign bond strategist at SMBC Nikko Securities Inc. “While investors are buying oil and stocks ahead of the announcement on Trump administration’s infrastructure plan, the yield is more likely to extend its advance” to 2.75 percent, he said.

Volumes in Treasury futures were robust in Asian trading hours. The yield advance on Friday came as the House passed a spending bill to avoid a U.S. government shutdown, though Senate Democrats said they have the votes to block the measure.

The U.S. two-year yield has been climbing since September and on Jan. 12 topped 2 percent for the first time since 2008, reflecting expectations for Fed policy tightening. Longer-term yields are on a gentler slope, a function of inflation struggling to meet the Fed’s 2 percent target.

The long end has also been weighed down by low rates elsewhere, which have enhanced the appeal of U.S. debt. The result has been a marked flattening of the yield curve -- seen by some as a potential harbinger of economic weakness.

— With assistance by Stephen Spratt