Bond Report: Yields for Treasurys resume rise with 10-year seen hitting 2% soon

U.S. Treasury yields resumed a march to multiyear highs on Tuesday, with some analysts predicting that the yield on 10-year debt may soon hit 2%.

What are yieldings doing?

The 10-year Treasury note rate TMUBMUSD10Y, 1.966% was at 1.961%, back at around its highest yield since 2019, up 4.6 basis points from Monday’s level at 3 p.m. Eastern Time.
The 2-year Treasury note TMUBMUSD02Y, 1.329% was yielding 1.321%, up 2.7 basis points from a day ago.
The spread or differential between the 2-year and 10-year Treasury, a popular measure of the yield curve, stands at 64 basis points.
The 30-year Treasury bond TMUBMUSD30Y, 2.258% yields 2.257%, rising 4 basis points from Monday afternoon.

What’s driving the market?

Yields are back on the rise, with markets now pricing in an almost one-in-three chance that the Federal Reserve might hike its benchmark interest rates by a full 50 basis points in March, and the benchmark 10-year Treasury note, used to price everything from car loans to mortgages, looks destined to hit 2% soon.

Analysts at Bank of America are now predicting that the Fed could lift rates seven times by 25 basis points starting in March and running at every meeting throughout the year in 2022. The bank also sees four more such rate hikes in 2023.

In data released Tuesday, the U.S. trade deficit jumped 27% in 2021 to a record $859 billion largely because the recovering economy gave Americans the means to buy more imports. Looking ahead, investors are awaiting a $50 billion auction in 3-year notes TMUBMUSD03Y, 1.568% at 1 p.m. ET, which could influence bond yields and offer some insight on appetite for Treasurys.

What strategists are saying?

“The bearish momentum remains in place with daily stochastics offering ample room to extend toward higher yields without risking oversold conditions,” wrote Ian Lyngen and Ben Jeffery, BMO Capital Markets strategists, in a Tuesday note. “Combined with the dearth of fundamental information ahead of the refunding auction tomorrow, the technical backdrop continues to favor a challenge of 2.0% in 10-year yields this week,” the analysts said.