For the first time in more than a decade, Bloomberg Treasury 10 year yields climbed above 4% as investors were irritated by Federal Reserve hawkishness and concerns about potential Japanese sales of US government debt.
An index of US securities extended its worst year since the 1970s after St. Louis Fed President James Bullard warned that the central bank has to keep raising interest rates to keep its credibility. The US debt is under pressure due to speculation that the sliding yen will cause Japan to do more intervention, possibly funded by Treasuries sales.
The US 10 year yield jumped by as much as six basis points to 4% Wednesday, reaching the threshold for the first time since April 2010. It has climbed almost 250 basis points in 2022. The Bloomberg gauge of the debt has slumped 14% this year, and the Treasuries have fallen for their biggest annual decline since 1973.
Andrew Ticehurst, a rates strategist at Nomura Inc. in Sydney said the US data was decent overnight, and the dollar is a negative for bonds because of the dollar s move higher against the yen. Japan may have bought a record 3.6 trillion yen $24.9 billion last Thursday to prop up its currency, Totan Research Co. estimated from central-bank data. The nation's $1.1 trillion in foreign-exchange reserves is about 20% of its cash component, leading to concern that further intervention will require sales of some of its Treasuries holdings, according to Nomura spokesman Ticehurst.
Bullard's commitment to containing inflation was echoed on Tuesday by Chicago Fed chief Charles Evans and Neel Kashkari of Minneapolis, who said the central bank should deliver on the rate increases it has forecast and then hold them there to restrain price pressures.
Bond markets have been wroiled this week by the UK's plan for comprehensive tax cuts, which has raised fears of a wave of fiscal profligacy that could lead to higher central bank interest rates.