BOSTON/LONDON: Mid-term US Treasury yields resumed their upward march on Monday with five-year yields rising to their highest levels since early 2020 as traders positioned for expected central bank rate hikes.
Yields on five-year bonds rose as high as 1.193pc, their highest since February 2020, extending a two-week rising streak. They were last up 5.1 basis points at 1.1732pc.
Meanwhile yields on 30-year US bonds were down slightly, flattening the gap between five-year and 30-year debt to about 86 basis points, the narrowest level since early last year.
Raymond James market strategist Ellis Phifer said the higher mid-term yields showed investors positioning for higher rates, while maintaining confidence the US Federal Reserve will be able to control long-term inflation.
"The market gives the Fed credit for fighting inflation, so you don't see the long end of the curve get out of control," he said.
Latest weekly positioning data showed hedge funds have increased their short bets on 2 and 5 year US Treasuries while simultaneously increasing their bullish bets on 10-year debt, indicating investors expect this curve flattening trend to extend in the coming months. Yields on benchmark 10-year US debt were up 2.6 basis points at 1.6019pc.
US stocks were higher on Monday on gains in big technology companies.
US Treasuries had sold off last week on strong US retail sales data and hawkish comments from some Fed speakers but Jefferies analysts believe it encouraged some investors to add new short bets on US bonds.
US retail sales rose 0.7pc last month and data for August was revised higher to show retail sales increased 0.9pc instead of 0.7pc as initially reported by the Commerce Department.
The 10-year TIPS breakeven rate was last at 2.56pc, hovering near a five-month high indicating the market sees inflation averaging almost 2.6pc a year for the next decade.
Money markets now attach a 41pc probability of one 25 bps rate hike by the US Federal Reserve by September 2022 compared to a 24pc probability a month earlier, according to CME data.