Lower Treasuries push 10-year yield to the highest since 2011

The steps

By Bloomberg
· October 3, 2018 4:21 pm · Updated 4:23 p.m.

The 10-year Treasury bond yield, a benchmark for global borrowing, has reached its highest level since 2011, amid rising optimism about the US economy. The 30-year bond rate reached its highest level in four years.

Investors' renewed appetite for riskier assets led to higher yields. Stocks climbed to record highs with optimistic news about US jobs and growing concern over the fiscal situation in Italy. The rise in yields on Wednesday, which pushed them above previous highs of 2018 set in May, followed stronger-than-expected US service and private payroll reports after the Federal Reserve raised interest rate last week.

The government publishes payroll figures for September and economists predict a drop in the unemployment rate to 3.8 percent. It has not been lower since 1969. Treasuries continue the decline in September due in part to faster than expected wage growth in the employment data released early last month.

"It started overnight with the Italian risk and the US data today is much stronger" than expected, said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York . "After last month's payroll, the market has started to catch up with the Fed and it's a continuation of it, there is reason to believe we can continue to aim for higher yields."

The benchmark 10-year benchmark yield climbed 7 basis points Wednesday to 3.1333 percent, exceeding the intraday high of 3.161 percent recorded in May. The 30-year yield rose 7 basis points to 3,295.

Money market traders are now forecasting more than two Fed hikes in 2019, with a tightening of about 0.54 percentage points, coming close to the makers' forecasts for three rate hikes next year. About two months ago, the market has seen only a slight increase.

The yield curve, which has tended to stabilize for much of this year, has strongly accentuated with the collapse in Wednesday's long-term returns.

The spread between 2 and 10 year yields has risen more than 3 basis points to settle at around 28 basis points, reaching its most pronounced peak since August.