US 10-year note flirts with 3pc yield after German inflation scare

NEW YORK: US Treasury yields rose on Friday with the benchmark 10-year note nearly hitting 3% after Germany reported record-high increases in monthly producer prices, which are seen as a leading indicator for inflation.

Producer prices in July in Germany - the euro zone’s leading economy - leapt 37.2% from the same time last year and 5.3% from June, mainly because of rising energy costs.

German bond yields surged, with the 10-year yield hitting a four-week high, as the data was seen as reinforcing fears of “stagflation” - a combination of high inflation and low growth.

“The epicenter of the backup in bond yields is coming from Europe,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. “The German PPI (Producer Price Index) is causing European yields to rise, and that’s rippling across global bond yields.”

The US benchmark 10-year Treasury yield, an important barometer for mortgage rates and other financial instruments, rose about 10 basis points from its close on Thursday to a month high of 2.988%. It hit an intraday high of about 2.998%, just shy of the 3% threshold it crossed in May for the first time since 2018 as investors worried about the US Federal Reserve’s plan to tighten monetary conditions.

The five-year note yield climbed to 3.114%, a new one-month high, while the two-year climbed to 3.265%, faring better than longer-dated bonds.

The rising pressure in yields offset a rally on Thursday, which was partly due to investors getting some relief from the minutes of the Fed’s July 26-27 policy meeting. The minutes, which were released on Wednesday, were seen by many as confirming a less aggressive stance in the US central bank’s fight against inflation.

A string of Fed officials on Thursday said the central bank needs to keep raising borrowing costs to bring high inflation under control, even as they debated how fast and how high to lift them.