(Bloomberg) — Treasury yields rose a second day, with five-year rates hitting the highest since before the pandemic took hold in the U.S., amid increasing conviction that the Federal Reserve will raise rates at least three times beginning in May.
The five-year Treasury note’s yield climbed as much as 4 basis points to 1.395%, the highest since Feb. 20, 2020, while 30-year yields bumped up toward their 200-day moving average. Yields retreated slightly from session highs after a measure of U.S.manufacturing declined more than forecast, with its prices-paid component slumping to the lowest level in more than a year.
Yields across the curve are rising for a second straight day, after Monday’s selloff lifted the 10-year note’s yield by nearly 12 basis points in its worst start to a year since 2009. The two-year yield topped 0.80% for the first time since March 2020.
That move rippled through markets from Australia to the U.K., where bond trading resumed after a holiday on Monday. Australian 10-year yields jumped as much as 15 basis points to 1.82%, the highest since Nov. 26. Yields on the same U.K. tenor surged as much as 10 basis points to 1.07%, the highest since Nov. 3.
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While the emergence of the omicron variant of Covid-19 roiled global markets and sent yields tumbling in late November, Treasury traders are now betting the rapid spread of the variant will increase inflationary pressures in the U.S. economy, rather than weaken them. The 10-year breakeven rate rose to 2.65%, the highest since Nov. 22, on Tuesday and has climbed more than 20 basis points since the Fed’s mid-December meeting when policy makers picked up the pace of tapering amid inflation concerns.
“The Fed’s framing of pandemic pressures as primarily on the inflation side versus growth concerns certainly sets the policy backdrop for the march toward higher Treasury yields,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
Treasuries are also under pressure as corporates rush to sell bonds at the beginning of the year. Fourteen companies are considering U.S. investment-grade bond sales on Tuesday, following seven deals on Monday, according to an informal survey of debt underwriters.
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