The benchmark Treasury yield rose to the highest level in more than three years, extending a sell-off in the world's largest debt market that began last September.
The 10-year yield climbed to as high as 2.6407% Friday, a level unseen since September 2014, from 2.6256%. Flows were skewed toward selling, with dip-buying demand muted given recent price action and decent volumes in cash and futures, according to three traders in Asia.
Yields on U.S. debt have been rising on the prospects of more Federal Reserve rate hikes and increased government debt issuance to finance America's widening budget deficit. President Donald Trump's plan to release his infrastructure proposal as early as January and a rally in oil prices to a three-year high have also boosted growth and inflation expectations.
"Rising oil and equities have fanned speculation that break-even inflation will climb," said Makoto Noji, chief foreign-exchange and foreign bond strategist at SMBC Nikko Securities. "While investors are buying oil and stocks ahead of the announcement on Trump administration's infrastructure plan, the yield is more likely to extend its advance" to 2.75%, he said.
The yield advance on Friday came as the House passed a spending bill to avoid a U.S. government shutdown, though Senate Democrats said they have the votes to block the measure.
The U.S. two-year yield has been climbing since September and on Jan. 12 topped 2% for the first time since 2008, reflecting expectations for Fed policy tightening. Longer-term yields are on a gentler slope, a function of inflation struggling to meet the Fed's 2% target.
The long end has also been weighed down by low rates elsewhere, which have enhanced the appeal of U.S. debt. The result has been a marked flattening of the yield curve — seen by some as a potential harbinger of economic weakness.
