US Treasury yields rose to their highest levels of the year on Friday, spurred by technical positioning and expectations of higher inflation and interest rates after the election of Republican Donald Trump as US president. The yield on US benchmark 10-year Treasury notes rose to 2.355 percent, which was the highest since December 4, 2015. Yields on the 10-year note looked set to post their largest two-week rise since November 2001.
Yields on Treasuries of all maturities have registered the largest two-week gains in more than five years as investors have dumped US government debt since Election Day. "The spike in yields can really be attributed to the market's outlook on inflation and domestic economic growth," said Jennifer Vail, head of fixed income research at US Bank Wealth Management in Portland. "And that relates directly to some initiatives that President-elect Trump has mentioned in the past, things such as increased defense spending, corporate tax cuts, perhaps relaxing some of the barriers to further domestic oil and gas production."
Such proposals would be expected to increase inflation, reducing the value of already-held bonds. Treasuries prices stalled early in the day on Friday but moved lower as investors sold government debt based on technical levels ahead of the weekend. Analysts noted that 2.30 percent was a major resistance mark in 10-year Treasury yields for bond investors.
"We've got this situation where the continuing rise in the dollar pressures rates in other markets, particularly those that are commodity or emerging market sensitive," said Jim Vogel, interest rates strategist at FTN Financial in Memphis. "So Treasury yields get still more defensive on the possibility that other bond prices are going to continue to decline." The move higher in yield for Treasuries pushed the gap between US and German 10-year government bonds to near the highest level on record, according to Tradeweb data. Yields on the 2-year Treasury note rose to 1.071 percent, the highest since January 4. Yields on the 30-year bond rose to 3.051 percent, near their 2016 high and on pace to close above 3 percent for the first time since January 5.
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