The 10-year Treasury yield breached a level last seen in April 2002, before easing more than 4 basis points to 5.251%. The 10-year is a key benchmark for rates on mortgage and auto loans and credit card debt. The yield on the 30-year Treasury bond also hit its highest in 24 years before pulling back to 5.61%.
Yields and prices move inversely. One basis point equals 0.01%.
“I think there’s some fatigue in the bond market. We moved 50 basis points in 18 trading days after Fed Chairman [Kevin] Warsh kind of messaged at Jackson Hole that indeed a rate hike was coming,” said Jeff Kilburg, CEO of KKM Financial. “I think there’s also a little bit of optimism that this is going to be a short-lived move to 5%. Of course there has to be an Iranian solution for that to be enabled.”
He said he sees the 10-year yield going back to around 4.5%-4.75% if the U.S. and Iran can reach a deal to end the war. “If we’re going to continue to stay in Iran, then that’s going to be problematic for the 10-year yield.”
Major economies face “persistently large deficits and rising interest expenses — challenges long associated with debt-distressed emerging market sovereigns,” the Institute of International Finance said last week.
Japan’s 10-year yield was last trading at 3.126%, the highest level since the mid-1990s. Japan’s debt has come under pressure from a weaker yen and rate hikes by the Bank of Japan.
“It’s worth noting, but people get pretty worked up about those sorts of spreads regularly, so I don’t think it’s a crisis point necessarily, as far as Germany versus France or Italy,” said Michael Schumacher, former managing director at Wells Fargo. “If you look at some countries that have very poor structural dynamics, like the UK, and I’d be concerned about that. People don’t typically trade gilts versus bunds as much, but just as a barometer of, say, market concern, I think that’s one to watch.”
Bonds had been moving in lockstep with oil prices, which have been turbulent as the U.S.-Israel war with Iran obstructed crude exports from the Middle East. Crude oil prices were higher on Thursday, with international benchmark Brent Crude back above $100 a barrel.
“We could see [bond] buyers come in effectively to take advantage of those yields, which would have the effect of causing them to go down, but also one of the things that has kept the volatility in those yields in the long end of the curve has been what’s going on with oil, what’s going on with inflation,” Nomi Prins, founder of Prinsights Global, told CNBC’s “Squawk Box Europe” on Thursday.
But sovereign wealth funds and central banks, among the main long-term holders of Treasury debt, are unlikely to go along, Prins said.
“We could see movement … in Treasury yields going down if oil prices go down significantly, if there’s a resolution” in the Middle East, Prins added.
— With additional reporting from CNBC’s Jeff Cox
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