NEW YORK: Bond traders are bracing for another tumultuous week in which key employment data could push yields on 10-year Treasuries toward 4%, a level that market watchers see luring investors into government debt.
The benchmark US rate rose to within striking distance last Thursday, climbing as high as 3.89%.
This was after an upward revision to first-quarter US economic growth and a drop in initial jobless claims sparked the biggest day for treasuries in more than three months.
Yields for most tenors approached the highest levels seen so far this year, while wagers that the Federal Reserve (Fed) might cut interest rates this year fizzled.
A wealth of events this week could unleash fresh bouts of selling and lift yields to 4%, not least the release of the first major economic reports for June, as well as minutes from the Fed’s latest meeting.
But for bond investors, the question is now whether yields in the 4% neighbourhood are attractive, and whether they offer sufficient compensation for the risk that the central bank will fail to get inflation under control.
The 4% level for 10-year yields “will bring in a wave of demand” from investors, said Zachary Griffiths, senior fixed-income strategist at CreditSights Inc. —Bloomberg
