Bond Report: Treasurys mixed after 10-year yield hits 7-year peak

Treasurys were putting in a mixed performance Wednesday, with the yield curve steepening as short-dated yields fell and longer dated yields edged higher a day after the benchmark 10-year Treasury yield hit a nearly seven-year high.

How are Treasurys performing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.33% rose 0.8 basis point to 3.084%, a day after registering the largest single-day climb since March 1, according to WSJ Market Data Group. The yield hit an intraday peak above 3.09% Tuesday, its highest since 2011. Yields and debt prices move in opposite directions.

The 30-year bond yield TMUBMUSD30Y, +0.17% rose 0.42 bsis point to 3.211%, after the long bond marked its largest daily yield climb since Feb. 2 in the previous session. The short-dated 2-year note yield TMUBMUSD02Y, -0.47% , meanwhile, edged 0.8 basis point lower to 2.577%.

The yield curve, as measured by the spread between the 2- and 10-year yields, reversed some of its recent flattening. A flattening curve can be read as a sign of concerns about future economic growth, though it is an outright inversion of the curve — with short-dated yields moving above long-dated yields — that serves as a reliable recession warning sign.

What’s driving the market?

Investors watched events in Asia, with North Korea’s threat to pull out of a summit planned for next month with the U.S. sparking worries that a brief detente between Pyongyang and Washington may be near an end.

Read: North Korea threatens to call off U.S. summit if Washington insists on denuclearization

Italian government bond yields jumped after a report said antiestablishment parties in talks to form a government would ask the European Central Bank to write off 250 billion euros ($296 billion) in debt and seek to renegotiate Rome’s contribution to the European Union budget.

Read: Italian bonds show euro ‘exit’ fears still rumble below the surface

What are strategists saying?

“The U.S. 10-year yield [temporarily] rose above 3.07% key resistance, but the test is ongoing,” wrote analysts at KBC Bank, in a Wednesday note. “The same goes for the test of 3.22% in the 30-year yield.”

“Treasury yields broke out above late April highs yesterday, and as seen in monthly charts below, this had even bigger implications for the longer-term trend channel. No countertrend evidence of exhaustion was present, so near-term yield pullbacks would represent a chance to sell Treasurys, expecting higher yields into late May/early June before any peak,” wrote Mark Newton, technical analyst at Newton Advisors in a Wednesday research note.

What data and Fed speakers are in focus?

Construction on new houses in the U.S. fell 3.7% in April, with the annual rate falling to 1.29 million homes, in line with forecasts.

Atlanta Federal Reserve President Raphael Bostic was due to address the economic outlook at Georgia’s Augusta Cotton Exchange.

The Federal Reserve said industrial production rose 0.7% in April, slightly stronger than Wall Street expectations for a 0.6% rise. A mix of revisions to the previous two months were net negative but still saw output grow at a 2.3% rate in the first quarter.

Check out: MarketWatch’s Economic Calendar

What are other assets doing?

The yield on the 10-year Italian government bond TMBMKIT-10Y, +8.58% jumped 16.2 basis points to 2.113%.

The 10-year German bond yield TMBMKDE-10Y, -6.57% fell 4.65 basis points to 0.602%. The German bond, or bund, is viewed as the eurozone’s risk-free security.

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