A selloff of German Bunds and this week's hefty corporate and government debt supply propelled longer-dated US Treasuries yields to their highest in more than seven months on Wednesday before yields pulled back following a solid 10-year note sale. Reduced concern that the euro zone would slip into deflation sent 10-year German yields above 1 percent for the first time since September. That caused investors to shed holdings of US Treasuries and Japanese government bonds , traders said.
"We are completely tracking Bund yields," said Mike Cullinane, head of Treasuries trading at D.A. Davidson in St. Petersburg, Florida. German 10-year yields rose for a fourth straight day, up 3 basis points at 0.984 percent. The yield on benchmark 10-year Treasuries hit 2.493 percent, the highest since 2.508 percent on October 1. It was last 2.487 percent, up 7 basis points on the day.
These yield levels might unnerve investors similar to what happened two years ago during the 'taper tantrum,' analysts said. "We are approaching yield levels where we may begin to see outflows from some bond funds. People might not have tolerance for more losses," said Boris Rjavinski, a strategist at UBS in Stamford, Connecticut. Investors dumped bond funds after then Federal Reserve Chairman Ben Bernanke hinted in May 2013 the US central bank might end its third large-scale bond purchases. Benchmark yields jumped some 100 basis points from May to July 2013 to 2.75 percent before stabilising.
The 10-year yield retreated from its earlier peak after a solid $21 billion auction of 10-year supply, which followed a well-bid three-year auction on Tuesday. The US Treasury Department will complete its debt sales this week with a $13 billion auction of 30-year bonds on Thursday. Analysts said these higher US yields should entice some investors to own new issues of Treasuries and corporate bonds, but those worried about a further rise in yields may refrain from purchasing them for now.