US Treasury prices finish lower

US government bond prices sank on Tuesday, pushing benchmark yields to a five-year high on fears that strong global demand will force central banks to raise interest rates and relentless selling by mortgage players.
Market sentiment, already bearish, also took a knock from an uninspiring auction of reopened 10-year Treasury notes that highlighted diminishing interest from overseas buyers.
The yield on the benchmark 10-year US Treasury note jumped to 5.30 percent, the highest in five years, exceeding the fed funds rate target of 5.25 percent. "If this is not a bear market, I don't know what is," Michael Pond, Treasury strategist at Barclays Capital, said of the spike in 10-year yields since the low of the year in March.
The 10-year note's price tumbled 31/32 for a yield of 5.30 percent, versus 5.17 percent late on Monday. The spike in yields has pressured stocks and emerging market debt, but hoisted the dollar to a two-month high versus the euro.
Treasury market trading volume was well above average, according to ICAP. As of 5:04 pm, Treasury market volume was $409.6 billion, about 34 percent above the 20-day moving average of $305.9 billion.
Higher long-term lending rates make borrowing more expensive for companies and consumers, threatening to curb economic growth. "You had some levered players out there who were desperate. " The rise in Treasury yields is clearly the thing that has knocked the stock market on its can and is also managing to knock down commodity prices," said Donald Coxe, global portfolio strategist in Chicago with the BMO Financial Group.
The Dow Jones industrial average fell nearly 1 percent and the S&P 500 Index lost 1.07 percent. Confronted with yields above 5 percent, investors are also selling Treasuries to hedge the lengthening of their mortgage portfolios, while foreign purchases are slowing down.
That lack of interest was evident in the auction of reopened 10-year Treasury notes, with indirect bidders, who include foreign central banks, taking about 11 percent of the auction. During the session, Treasuries got a brief respite after former Federal Reserve Chairman Alan Greenspan said he was not worried about China selling US government bonds.
"The reason we are weak is the lackluster auction and the mortgage hedging that continues to take place in the market," said Thomas di Galoma, head of US Treasury trading at Jefferies & Co in New York. The 30-year bond tumbled 1-30/32 in price, raising the yield to 5.41 percent, the highest level since 2004. The 30-year bond's yield had traded around 5.27 percent late on Monday.