Economy 3 MIN READ

TREASURIES-Yields grind higher, 10-year crosses above 2.7%

April 11, 2022By Reuters

Updates prices, adds details

By Rodrigo Campos

The U.S. Treasury 10-year yield hit a three-year high on Friday above 2.7% and the 2-year/10-year spread remained near its widest this week as traders bet on a more hawkish stance from the Federal Reserve.

The 10-year yield hit 2.73%, its highest since March 2019, and the yield on 10-year inflation-protection securities US10YTIP=RR went within 15 basis points of turning positive for the first time in over two years.

The sharp move higher in yields this week started on Tuesday after comments from dovish Fed Governor Lael Brainard shifted the market’s focus from rate hikes to the runoff of the Fed’s balance sheet.

“Right now the biggest theme is a momentum trade, where yields are pushing higher,” said Guy LeBas, chief fixed income strategist at Janney in Philadelphia.

LeBas said the recent move higher in yields “reflects perceptions that the Fed is set to do more than just what’s necessary to reduce inflation, but also possibly what’s necessary to slow economic growth.”

Some technical indicators show yields at an inflection point, meaning they could struggle to move much higher. But if they do there would be little technical resistance to take another leg up. nL2N2W40PM

Yields on the 2-, 5- and 10-year Treasuries have this week hit multi-year highs, and the 2/10 yield spread turned positive after having inverted late last week.

The yield on 10-year Treasury notes US10YT=RR was up 5.2 basis points to 2.706% while the 2-year note yield US2YT=RR was up 5.8 basis points at 2.520%, leaving the 2/10 spread at 18.41 basis points.

The near 27-basis-point widening of that spread this week is the most for any week back to June 2013, and follows last week’s 27.5 basis point tightening that inverted the curve, the sharpest weekly tightening since September 2011.

The benchmark 10-year note yield is up 36 basis points this early in the month. It would already be the second-largest monthly advance in more than five years.

The yield on the 30-year Treasury bond US30YT=RR was up 3.7 basis points to 2.726%, after touching 2.76%, its highest since May 2019.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at 3.306%, after closing at 3.232% on Thursday.

The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.892% and the U.S. dollar 5-years forward inflation-linked swap USIL5YF5Y=R, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed’s quantitative easing, was last at 2.625%.

Weekly absolute change in 2s-10s spread

(Reporting by Rodrigo Campos; Editing by John Stonestreet, Will Dunham and Andrea Ricci)

((; @RodrigoCampos))

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