(Bloomberg) -- The 10-year U.S. Treasury yield rose to its highest level since 2011, extending a selloff in the world’s biggest bond market and raising fresh questions about how high America’s borrowing costs will climb. The dollar reached the strongest point since December.
The global borrowing benchmark surpassed 3.0516 percent, the intraday peak from Jan. 2, 2014, and reached 3.0539 percent on Tuesday in New York after a report showed retail sales rose in April. The rout in Treasuries comes amid a flood of new issuance and as the Federal Reserve is projected to boost interest rates further. Inflation expectations are hovering near the highest since 2014, after years of doubts about whether prices and wages would increase.
The new marks in the 10-year rate matter because few obvious levels of support exist that would impede further declines. Traders are now looking at the 3.2 percent area, which would match highs seen in mid-2011.
“Bearish price action must be respected,” BMO Capital Markets strategists Ian Lyngen and Aaron Kohli wrote in a note Tuesday. “We’ve focused on technical factors as driving this selloff and as long as the price action paints a bearish picture for 10s, we’ll stand aside and wait for the selling pressure to subside before taking a stab at any long positions.”
The median estimate in a Bloomberg survey of 58 analysts is for the 10-year yield to end 2018 at 3.19 percent. The responses are largely as of May 10, with some coming more recently.
The leap in yields comes as bond traders continue to price in a quicker pace of Fed rate increases. They now expect about 2.5 additional quarter-point hikes in 2018, even more than the central bank’s projections, according to fed funds futures data compiled by Bloomberg.
