Treasury yields extend surge

US Treasury yields surged on Thursday with benchmark yields touching their highest levels in roughly a year and a half on expectations that gains in oil prices and US President-elect Donald Trump's policies would fuel higher inflation. Brent crude prices built on Wednesday's gains with a more than 4 percent jump a day after Opec and Russia agreed to restrict output.
The rally in crude, along with expectations that Trump will enact policies that increase spending and debt as well as spur growth and inflation, pushed Treasury yields higher. Inflation erodes bond prices, with 10- and 30-year Treasuries most vulnerable. A stronger-than-expected US manufacturing reading for November and a rise in US construction spending in October also boosted yields.
"Investors are building the possibility of inflation into the Treasury curve," said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee. Benchmark 10-year yields hit 2.492 percent, their highest level since June 11, 2015, while 30-year yields hit a 16-1/2 month high of 3.156 percent. US five-year yields hit a more than 5-1/2-year high of 1.935 percent, while seven-year yields hit a more than two-year high of 2.295 percent.
US two-year yields hit just a six-day high of 1.167 percent, while three-year yields hit their highest since mid-February 2011 at 1.469 percent. Comments on Wednesday from Steven Mnuchin, Trump's pick to lead the US Treasury, on introducing a longer-maturity bond added to expectations that long-end rates would increase further, said Kim Rupert, managing director for fixed income at Action Economics in San Francisco.
The continued surge in yields came after US Treasuries posted a negative 2.7 percent return in November to mark their worst performance since January 2009, according to Bloomberg Barclays index data, while the Bloomberg Barclays US Aggregate Bond Index posted a negative 2.4 percent return to mark its worst monthly showing in at least 10 years.
Traders awaited US monthly employment data due on Friday. Economists polled by Reuters expect US employers added 175,000 jobs last month. US 10-year Treasuries were last down 21/32 in price to yield 2.4445 percent, up about eight basis points from its yield late on Wednesday. US 30-year Treasuries were last down 1-19/32 in price to yield 3.1027 percent, also up about eight basis points from late Wednesday's yield. Prices on 30-year Treasuries briefly fell more than two full points.