Bond Report: U.S. Treasury yields steady near 7-year high

The yield on 10-year U.S. benchmark notes jumped above 3.1% in early Thursday trade, but eased back later in the session as traders hit the pause button on the recent bond market selloff.

In Italy, interest rates continued higher as the country’s two largest populist parties pushed forward with plans to form a coalition government.

How are Treasurys performing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.09% was up 0.2 basis point at 3.094%, but had risen above 3.115% earlier in the day. That left the yields at its highest level since July, 2011. Yields and debt prices move in opposite directions.

The 30-year bond yield TMUBMUSD30Y, +0.00% edged up 0.3 basis point to 3.218%, while the short-dated two-year note yield TMUBMUSD02Y, +0.01% added 1.3 basis points to 2.585%.

Meanwhile in Italy, the yield on 10-year government paper TMBMKIT-10Y, +2.64%  rose 6 basis points to 2.166%.

What is driving the market?

U.S. yields have risen sharply in recent days after solid economic data rekindled speculation the Federal Reserve may have to raise interest rates more aggressively than previously expected.

In that light, traders were waiting for the latest batch of economic data out on Thursday. It starts with updates for weekly jobless claims and the Philly Fed index for May that are both due at 8:30 a.m. Eastern Time. A report on leading indicators for April is due at 10 a.m.

Minneapolis Fed President Neel Kashkari will take part in a moderated discussion at 10:45 a.m. Eastern.

In Italy, the 5 Star Movement and the League parties reportedly prepared a new draft of their coalition program, which is likely to be submitted to Italian President Sergio Mattarella later on Thursday. The new program reportedly included no references to the possibility of Italy leaving the euro, but did point to the need for a revision of EU treaties.

What are strategists saying?

“The big question for European and U.S. stock markets on Thursday is when they may reach their pain threshold. This week has seen recharged inflation expectations drag Treasury yields higher, with borrowing costs on forward rates also joining the party. That means Main Street is preparing for inflation to ‘normalize’, maybe even overshoot over the next few years,” said Ken Odeluga, market analyst at City Index, in a note.

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