US yields rise on strong data amid supply

NEW YORK – Benchmark 10-year Treasury yields hit an eight-month high on Tuesday after better-than-expected data pointed to a strong economy and as the Treasury auctioned USD 39 billion of the notes to average demand.

US job openings in November grew to 8.098 million, exceeding forecasts for a 7.7 million rise, and higher than October’s numbers of 7.839 million.

US services sector activity also accelerated in December, while a surge in a measure of prices paid for inputs to near a two-year high pointed to elevated inflation.

“It’s giving the impression that the economy is re-accelerating,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

Goldberg said positive seasonality could be helping the data appear stronger than it is. “But optically speaking, that’s what’s really driving Treasuries here – that expectation that maybe things are actually getting a lot better,” he said.

Friday’s employment report for December will next be watched for clues on the strength of the labor market. It is expected to show that employers added 160,000 jobs during the month.

Interest rate-sensitive two-year note yields were last up 2.7 basis points on the day at 4.297%.

Benchmark 10-year yields rose 7.1 basis points to 4.687% and peaked at 4.699%, the highest since April 26.

The yield curve between two-year and 10-year notes steepened four basis points to 39.3 basis points, the steepest since May 2022.

Thirty-year Treasury yields rose 7.5 basis points to 4.913% and reached 4.926%, the highest since Nov. 2023.

The Treasury saw okay interest for its 10-year auction, which may have been helped by Tuesday’s sharp rise in yields.

The debt sold at high yield of 4.680%, close to where it had traded before the sale. Demand was 2.53 times the amount of debt on offer.

The US government saw soft demand for a USD 58 billion sale of three-year notes on Monday and will also sell USD 22 billion in 30-year bonds on Wednesday.

Heavy corporate debt issuance is also seen weighing on the market this week.

Treasury yields have increased despite the Federal Reserve cutting interest rates by 100 basis points since September. The US central bank is expected to be more cautious in making further rate reductions this year as long as inflation stays above the Fed’s 2% annual target.

“The market is really pricing for a higher terminal rate…right around 4% is where we’re at right now and that’s only 25 basis points from where the funds rate is now,” said Dan Mulholland, head of rates – trading and sales at Crews & Associates in New York.

Analysts expect policies, including tax cuts and looser business regulations introduced by Trump and the Republican-led Congress, will boost growth, while others, including a clampdown on illegal immigration and tariffs, could add to inflation.

Concerns over the longer-term fiscal trajectory are also leading longer-term US Treasury yields higher, with the US budget deficit expected to continue to worsen.

“The market is building more term premium into the long end to account for the fiscal situation, the deficit, and potentially a lot more issuance in the long end of the curve,” Mulholland said.

(Reporting by Karen Brettell; Editing by Jan Harvey, Barbara Lewis, and Nick Zieminski)