Treasury 10-year note yields rose to 2.5% for the first time in almost two years as investors fled U.S. debt with the Federal Reserve forecasting growth strong enough to allow policy makers to stop buying bonds.
Yields on the benchmark security for everything from mortgages to corporate loans have surged this week by the most in almost four years after Fed Chairman Ben S. Bernanke said June 19 the central bank may begin dialing down quantitative easing this year and end it in mid-2014. Yields on German bunds touched a 14-month high, while U.S. stocks fluctuated after a two-day plunge and the dollar rallied.
“Bernanke has moved the range higher, and we still have liquidation going on,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the 21 primary dealers that trade with the Fed. “But the market is still in price-discovery mode. The range is undefined. There is value around these levels, but with an unwind like this there is still a lot of confusion on where we should be.”
Ten-year yields climbed 10 basis points, or 0.10 percentage point, to 2.51% at 2:55 p.m. New York time, according to Bloomberg Bond Trader prices. It was the highest since Aug. 8, 2011. The yields have increased 38 basis points this week, the most since March 2003.
The price of the 1.75% note due in May 2023 slid 26/32, or $8.13 per $1,000 face amount, to 93 3/8.
Thirty-year bond yields advanced five basis points to 3.56% and touched 3.57%, the highest since September 2011. They have added 25 basis points this week, the most since September 2012.
“The market is adjusting to the new reality,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “People have been hiding in bond funds. Bond funds have been piggy-backing off the Fed. The adjustment process may take us a little further than you would think.”
The 10-year note yield may extend its increase to 2.75% if it closes above a technical level at 2.52%, according to Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. That’s the 61.8% Fibonacci retracement level from a July 1, 2011, high, he said. Fibonacci analysis is founded on the theory that prices tend to rise or fall by specific percentages after reaching a new highs or lows.