US Treasury debt prices slid on Thursday, sending benchmark yields above 5 percent for the first time in nearly four years as the prospect of rising global interest rates took its toll.
Bonds extended losses after Federal Reserve Governor Donald Kohn said capacity utilisation and the unemployment rate were running in ranges that have previously been linked with upward price pressures.
Benchmark 10-year notes were off half a point and yielding 5.05 percent, up from 4.98 percent Wednesday.
Analysts said it was tough for the market to get any traction in an environment where official rates, which set a floor for lending under which banks cannot make money lending, are set to rise further.
"Most bond investors believe on a global level that buying bonds today will mean jumping in at a time when bond market yields are expected to go higher in the short to medium term," said Matthew Smith, vice president of Smith Affiliated Capital.
Indeed, data showing a rebound in retail sales in March only reinforced expectations for at least one additional interest rate hike from the Fed in May, which would bring the target fed funds rate to 5 percent.
There was fierce debate over the likelihood of subsequent moves, but futures markets had boosted the chances of a June move up to 60 percent.
With the brunt of price losses concentrated in long maturities, the yield curve steepened further as the spread between the 10- and two-year debt widened to about nine basis points from seven. Two-year notes slipped 2/32 in price to yield 4.95 percent, up from 4.92 percent.
Some analysts described the 10-year Treasury yield's breach above 5 percent as a belated game of catch-up, since long-term rates had until recently failed to react to the Federal Reserve's steady dose of monetary tightening.
"The bond market was unresponsive and almost dismissive of the pace of Fed tightening earlier this year," said Joseph DiCenso, market strategist at Lehman Brothers. "We expect the Fed to keep going, so this move is no surprise."
Since June 2004, the Fed has raised interest rates to 4.75 percent from a four-decade low of 1 percent. But long-term rates have only responded over the past three months or so, with benchmark yields surging over 0.70 percentage point since mid-January.
Exacerbating the trend, US retail sales grew 0.6 percent last month, just above forecasts of a 0.5 percent gain, while sales excluding autos rose 0.4 percent. February's slide also appeared less dramatic after revisions.
Other economic reports showed a rise in jobless claims in the latest week and an unexpected decline in import prices, neither of which rattled the Treasury market. A separate report showed a slight gain in consumer sentiment so far this month.
Analysts expected price action to be subdued as the day progressed, since many bond traders would be going home early ahead of a long holiday weekend.
Five-year notes were down 7/32 to yield 4.97 percent, while the 30-year bond slid 26/32 for a yield of about 5.11 percent, its highest yield since August 2004.
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