The US 10-year Treasury yield on Thursday climbed to 2 per cent for the first time since August 2019 as investors ditched government debt on the latest evidence of stubbornly high inflation.
The benchmark bond yield, which serves as a reference point for financial assets across the globe, has risen 0.49 percentage points so far this year as investors position for a series of interest rate rises and the end of large-scale bond purchases by the Federal Reserve, but crossing 2 per cent marks a significant milestone for investors.
The jump came after the Bureau of Labor Statistics reported that the consumer price index had risen 7.5 per cent in January from a year earlier, the fastest pace of US inflation in 40 years.
“It is a challenging time to be a central banker, especially as it now seems that policymakers have been too relaxed on inflation over the past six months,” said Alastair George, chief investment strategist at Edison Group. “Sharply rising government bond yields represent a pre-tightening of financial conditions well ahead of any official interest rate increases.”
Benjamin Jeffery, an analyst at BMO Capital Markets, said the 2 per cent threshold was also “technically significant given the market’s fondness for round numbers”.
Although the 10-year yield is back above the 2 per cent threshold, some analysts have been surprised by how little it has risen in the face of inflation rates not seen for decades.
Short-dated yields, which are highly sensitive to interest rate expectations, have moved more sharply in 2022. The relatively muted rise in the 10-year yield, which tends to reflect longer-term expectations about the prospects for the economy, could be a sign that some investors are concerned about the outlook for growth.
“US inflation has consistently beaten expectations and today’s inflation release saw more of the same,” said Jai Malhi, global market strategist at JPMorgan Asset Management. “This provides a significant challenge for the Fed as it aims to keep price increases under control while at the same time sustaining the economic expansion.”
Additional reporting by Joe Rennison in New York