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Bond Report: 10-year yield highest since late 2018 as Treasury selloff continues

Treasury yields moved higher Monday, with the 10-year rate pushing above 2.86%, as investors returned from a three-day weekend.

U.S. and European markets were closed for Good Friday. Most European markets remained closed Monday.

What did yields do?

The yield on the 10-year Treasury note

was 2.861% at 3 p.m. Eastern, compared with 2.808% Thursday afternoon. Monday’s level marked the highest close, based on 3 p.m. levels, since Dec. 14, 2018, according to Dow Jones Market Data.

The 2-year Treasury yield

was 2.458%, compared with 2.442% Thursday afternoon.

The 30-year Treasury yield

was 2.951%, compared with 2.917% late Thursday. Monday’s 3 p.m. level was the highest since April 29, 2019.

What drove the market?

Treasury yields have marched higher in 2022 as investors wrestle with inflation running at its hottest in four decades. Last week, data showed the year-over-year pace of U.S. consumer inflation at 8.5%, its hottest since 1981, though a slower rise in the monthly core inflation reading, which strips out volatile food and energy prices, fueled a debate over whether inflation may be peaking.

The Fed is seen pressing ahead with an aggressive tightening of monetary policy, including a likely half-point increase in the fed funds rate target, rather than the usual quarter-point increment, at its policy meeting next month and has outlined a tentative plan for a fast-paced reduction of its nearly $9 trillion balance sheet.

The spread between 2- and 10-year yields narrowed somewhat early Monday, though it’s resteepened from where it was from late March to early this month. That’s when the yield on the 2-year Treasury note moved above the 10-year rate, temporarily inverting the yield curve. A persistent inversion of that part of the curve is seen as a reliable recession warning signal.

See: Recession fears and the stock market — Is it too late to play defense?

China’s economy expanded 4.8% annually in the first quarter, which beat expectations.

The National Association of Home Builders’ monthly confidence index once again fell two points from the previous month to a reading of 77 in April, the trade group said Monday. The index remains at the lowest level since September.

What do analysts say?

“Looking at the yield curve, the 10s-2s spread continued to widen out and is now smack in the middle of the 30-40 basis point resistance range, and we think that’s a critical resistance level,” said Tom Essaye, founder of Sevens Report Research, in a note.

“If this steepening in the yield curve is mostly technically driven, it should stall here. However, if the 10s-2s spread decisively breaks through 40 bps, we’ll again take that as a signal from the bond market that it simply does not believe the Fed will be tough enough to break inflation. And if that’s the case then it’s bullish for value and commodities, even considering current gains,” he wrote.

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