US Treasury prices plunge

US Treasuries fell on Thursday as traders interpreted the mix of looser monetary policy, firmer economic data and record high oil prices as a dangerous cocktail that would eventually turn inflationary.
Long-dated bonds have swooned since Tuesday's aggressive half-percentage-point interest rate cut from the Federal Reserve sparked worries that the central bank was neglecting its commitment to price stability. Lower official rates also drove a sharp tumble in the dollar, further tarnishing the allure of US securities.
"It's been feeding on itself," said Beth Malloy, a bond market analyst at Briefing.com. "There are inflation worries out there because that's where they're sending us."
That possibility seemed all the more plausible with the cost of crude oil skyrocketing above $84 a barrel. Other commodities, including gold, also soared. These factors helped shove benchmark 10-year notes down 1-10/32 in price for a yield of 4.71 percent, up an impressive 17 basis points in just a day. Bond yields move inversely to prices.
In an even more ominous reflection of inflation concerns, 30-year yields posted their biggest three-day spike since the maturity was reintroduced last year. The long bond was down over 2 full points in price on Thursday alone.
The day's economic data lent further momentum to the sell-off. Weekly jobless claims receded, suggesting the labour market was not as troubled as some feared - yet another potential source of cost increases.
The weaker dollar appeared to be helping exporters in the manufacturing sector, analysts said. The Philadelphia Fed's index of manufacturing activity jumped in September after showing stagnation just a month earlier, surpassing analyst forecasts.
Equity markets were down, but only after two days of robust rallies following the Fed's rate cut. Given that backdrop, the modest dip in stocks failed to support Treasuries. By the end of the session, shorter maturities were also being pulled down. Two-year notes dived 7/32 and were yielding 4.13 percent, up 12 basis points.
Still, disproportionate losses in long-dated debt forced a further steepening of the yield curve, with the gap between 10- and 2-year notes widening to 59 basis points, near their highest in over two years.