Solid housing starts boost long-dated yields to four-month highs

NEW YORK: US 10-year Treasury note and 30-year bond yields hit fresh four-month highs on Wednesday morning after a report that US homebuilding increased more than expected in August.

Housing starts rose 9.2 percent last month, the Commerce Department reported, a positive sign for the housing market, which has underperformed the broader economy amid rising interest rates for home loans.

The strong data pushed 10-year yields to a high of 3.085 percent, and 30-year yields to a high of 3.235 percent, extending a three-day rise in yields.

Global equities have rallied, delivering a blow to safe-haven assets such as Treasuries, as investors have bet that the escalating trade fight between the United States and China would inflict less damage than expected.

"The data continues to come out better than expected. There's a possibility that we're going to continue to see a strong equity market and that will continue to push Treasury prices down," said Tom di Galoma, managing director at Seaport Global Holdings.

On Monday, Tuesday and Wednesday, the 10-year and 30-year yields climbed to fresh four-month peaks. The annual highs for both maturities were hit on May 18: 3.128 percent for the 10-year, and 3.264 percent for the 30-year.

Some analysts believe those highs are the market's next technical threshold, and that yields will continue to rise until they are reached.

"The high yield on 10-year notes was 3.128 percent for 2018 and the market is testing that technical level," said di Galoma.

US President Donald Trump on Monday announced the imposition of 10 percent tariffs on about $200 billion worth of Chinese imports, but sparing consumer products such as smart watches, bicycle helmets and baby car seats.

On Tuesday, China hit back at the United States, announcing tariffs on about $60 billion worth of US goods, but reducing the volume of tariffs that it will collect on the products.

The three-day rally in longer-dated maturities steepened the yield curve, with the spread between 2-year and 10-year yields hitting a high of 26.7 basis points, up from Monday's open at 19.10 basis points. The spread between the 5- and 30-year yields hit a high of 26.9 basis points, up from Monday's open at 22.8 basis points.