U.S. 10-year Treasury yields climbed to their highest level in 24 years on Wednesday, setting up a closely watched test of investor demand as the government prepares to auction $39 billion of benchmark notes later in the day.
The benchmark 10-year Treasury yield rose nearly 7 basis points to 5.36%, levels last seen in 2002.
The 30-year Treasury yield also climbed around 7 basis points to 5.73%, reaching a 24-year high, while the 2-year Treasury yield fell 2 basis points to 4.785%.
The sell-off in Treasuries spilled into broader financial markets, with US stocks opening lower Wednesday after a rally in the previous session.
The S&P 500 index was down 0.67% at the time of writing, while the Nasdaq Composite fell 0.75%.
The S&P 500 and Nasdaq Composite had closed at record highs Tuesday as Treasury yields eased.
Big test coming up today
The Treasury Department is scheduled to sell $39 billion of 10-year notes on Wednesday in an auction that will offer a key indication of whether higher yields are attracting sufficient demand from investors.
The sale will be crucial to see whether investors will finally view the high yields as attractive enough or they will continue to seek an even greater premium as concerns over inflation and government debt levels persist.
The 10-year Treasury is a key benchmark for global financial markets, influencing borrowing costs not just in the US but across the world.
Rising yields could also hurt equities as risk-free bonds could seem more attractive to investors. Yields move in the opposite direction of prices.
The 10-year sale is the second of three Treasury auctions scheduled for the week. The government sold $58 billion of three-year notes Tuesday and is scheduled to sell $22 billion of 30-year bonds Thursday.
The Treasury is also set to conduct its latest buyback operation Thursday, targeting securities with maturities between 20 and 30 years.
The liquidity-support operation will be at least $4 billion, or twice its normal size.
The last buyback in that maturity range totaled just over $4 billion.
Bond rout continues
The 10-year Treasury yield surged more than 50 basis points in September and has climbed to multi-decade highs as investors reassessed inflation risks, fiscal conditions and demanded better compensation to hold longer-term US government debt.
Inflation concerns have been reinforced by higher global energy prices.
The war in Iran has sent energy prices soaring, contributing to inflation worldwide and shifting investor expectations that central banks could keep interest rates higher for longer.
Brent crude futures, the international pricing benchmark, have climbed back above $100 a barrel.
At the same time, major governments around the world are confronting rising national debt and widening budget deficits.
That is forcing governments to issue more debt at a time when investors are demanding higher yields to absorb additional supply.
The combination of inflation concerns, increased government borrowing, and elevated term risk has kept pressure on longer-dated Treasuries, making Wednesday’s 10-year auction a closely watched gauge of investor appetite for US government debt.
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