Yields on US Treasuries jumped on Thursday, following rising European yields, after the latest round of stimulus from the European Central Bank disappointed investors and US Federal Reserve Chair Janet Yellen made more comments that fuelled expectations of an interest rate hike this month. The yield on US benchmark 10-year Treasury notes saw its biggest daily rise in two years and the yield on the 2-year note climbed to 0.994 percent, its highest since April 2010.
US Treasury yields leaped during the ECB statement and rose more after ECB President Mario Draghi spoke. Markets were seen as responding to a sharp rise in European yields as the euro rallied on the news. More monetary stimulus would be expected to keep yields lower.
The ECB cut a key interest rate and announced an extension of monthly asset purchases, but markets had expected more. "Treasuries today are certainly responding to the ECB because the signal and action from the ECB was not as accommodative as the US market expected," said Jennifer Vail, head of fixed income research at US Bank Wealth Management in Portland, Oregon.
Yellen told lawmakers the US central bank is close to lifting its overnight interest rate from near zero. A day earlier, she delivered remarks seen as hawkish and indicative of the Fed's plans to raise rates at its December 15-16 meeting. "The two-year note is getting closer to 1 percent, suggesting the market has priced in a move this month, and with Yellen's comments yesterday and her testimony today, there's no reason for the market not to anticipate an increase," said Ninh Chung, head of investment strategy at Silicon Valley Bank in San Francisco.
Some selling was seen as the result of leveraged funds targeting low volatility across several asset classes. Those funds were forced to respond to the simultaneous jump in volatility in bonds and stocks, which would expose them to greater losses. According to Bank of America research, these funds, which were heavily involved in the dramatic selloff in late August, have since returned to the level of leverage they had prior to that downturn.
US benchmark 10-year Treasury notes were last down 1-10/32 in price to yield 2.326 percent, up from a yield of 2.178 percent late on Wednesday. The US 30-year bond fell 3-6/32 in price to yield 3.068 percent, up from a yield of 2.907 percent late Wednesday.