New York September 28 2022: Treasury 10-year yields climbed above 4% for the first time in more than a decade as investors were rattled by Federal Reserve hawkishness and concern over potential Japanese sales of US government debt.
An index of US sovereign securities extended its worst year since at least the 1970s after St. Louis Fed President James Bullard warned the central bank has to keep raising interest rates to retain its credibility. US debt is also under pressure due to speculation the sliding yen will compel Japan to conduct more intervention, potentially funded by Treasuries sales.
The benchmark US 10-year yield jumped as much as six basis points to 4% Wednesday, reaching that threshold for the first time since April 2010. It has now climbed almost 250 basis points in 2022. Treasuries are headed for their biggest annual decline since least 1973, with a Bloomberg gauge of the debt slumping 14% this year.
“US data was decent overnight, and the dollar’s move higher against the yen is a negative for bonds,” said Andrew Ticehurst, a rates strategist at Nomura Inc. in Sydney. “As we get closer to 145, expectations grow for fresh intervention and there are some who worry Japan might need to sell bonds to do so.”
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. That represents about 20% of the cash component of the nation’s $1.1 trillion in foreign-exchange reserves, fueling concern that further intervention will require sales of some of its Treasuries holdings, Nomura’s Ticehurst said.
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 also been roiled this week by the UK’s plan for comprehensive tax cuts, which has raised fears of a wave of fiscal profligacy worldwide that may eventually mean even higher central bank interest rates.
