Selloff pauses after yields hit four-year highs

US Treasury yields pulled back from almost four-year highs reached overnight on Monday as investors weighed whether a dramatic week-long selloff had run its course, after improving economic data raised expectations of further rate hikes this year. Benchmark 10-year note yields surged to 2.885 percent overnight, the highest since January 2014, following data Friday that showed hourly wages rose in January.
They fell back to 2.819 percent in New York afternoon trading. Signs that inflation is firming have raised some traders' expectations that the Federal Reserve may hike interest rates four times this year. Fed officials have indicated that three rate hikes are likely.
Many investors are reluctant to stand in the way of the selloff, which has sent 10-year yields up from a low of 2.654 percent last Monday, until they see signs of stabilization. "Even if you think it's gone too far, or even if you think we've sold off a little more than probably warranted at this point, you don't really have those buyers that are willing to step in and stop it until we see some signs of slowing," said Blake Gwinn, an interest rate strategist at NatWest Markets in Stamford, Connecticut.
The selloff has raised some fears that the 30-year bond bull run may have ended, though until 10-year yields have a prolonged stint over 3 percent some analysts see that belief as premature. "It's not clear to me that over a 10- or 30-year horizon you're really getting inflation and gross domestic product at a level that should make you comfortable with yields over 3 percent," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York.
"Central bank actions can certainly ignite a move based on positioning, but that doesn't mean it's persistent," Kohli added. Investors are also nervous about bond yields as the Treasury is due to significantly increase issuance this year to make up for declining Fed purchases. The Treasury will sell $66 billion in notes and bonds this week, including $26 billion in three-year notes on Tuesday, $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds on Thursday.
Data on Monday showed that US services sector activity raced to a near 12-1/2-year high in January, buoyed by robust growth in new orders.