10-Year Treasury Yield Hits 3% Threshold May Signal New Baseline for Higher Interest Rates
U.S. Treasury bonds fell Thursday, pushing the yield on 10-year notes to 3%, a threshold that may signal a new baseline for higher interest rates that could send ripples through the U.S. economy and global financial markets. The benchmark 10-year Treasury note's yield was the highest level since September, marking the second time this year that the yield reached the 3% mark. The note's price was about 3/32 lower on Thursday, according to Tradeweb. Trading on Thrusday was thinner than normal due to the holiday week which could exaggerate bond price and yield moves, traders said. The 10-year Treasury yield is a key rate used as a reference point for the cost of borrowed money for U.S. consumers and businesses. It also serves as a rate used to set the terms for foreign governments and companies to sell bonds in U.S. dollars. The rise continues a trend that has set in place more than a year ago when the yield hit a record low of 1.38% in July 2012. The last time the 10-year yield persistently traded above 3% was in 2011. For most of this year, investors bought up Treasurys when prices fell and yields approached 3%, seeing the debt as a bargain at that level given patchy economic data releases for much of the year and uncertainty about the Federal Reserve's plans for pulling back its bond-buying stimulus. The Federal Reserve said in December it will begin at the start of next year to cut back its $85 billion a month bond-buying, citing a stronger job market and economic growth. A 10-year note yield of 3% or higher is a sign that traders believe the U.S. economy is steadily improving and the Fed will keep culling its stimulus, said analysts and traders. "Round numbers like 3% are important for psychological reasons and investors tend to watch those numbers with added interest,'' said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York. He adds that if the yield rises above 3.05%, there could be "a significant and rapid move higher in yield" toward 3.25%.