10-Year Treasury Yield Reaches Highest Level in a Year

Treasury yields rose sharply on Monday as the spot market, which was closed Friday in observance of Veterans Day, caught up with moves in the futures market.

Yields climbed in the U.S. and Europe, with the yield on the 10-year Treasury rising 9.1 basis points to 2.243%, its highest level in a year, while the yield on the German 10-year bund, the European benchmark, advancing 2.7 basis points to 0.177%.

The two-year yield climbed 4.9 basis points to 0.964%, its highest level since January. The yield on the 30-year bond gained four basis points to 2.978%, its highest since December.

The bond-market selloff, the latest leg of which began last week after Republican Donald Trump beat Democrat Hillary Clinton in the U.S. presidential election, persisted on Monday, despite weak retail and output figures out of China, which suggested a pause in growth momentum in the world's second-largest economy.

"The fact that this selloff happened despite disappointing data in China also highlights just how US focused this selloff is," said Aaron Kohli and Ian Lyngen, a team of fixed-income strategists at BMO Capital Markets, in a research note published Monday.

The heightened sense of uncertainty following Trump's victory over Clinton in Tuesday's election has passed more quickly than expected, said fixed-income strategists at J.P. Morgan in a research note.

Now, the emphasis Trump has placed on infrastructure spending, as well as the conciliatory tone of his acceptance speech, has helped calm equity and currency markets and triggered a shift toward higher growth and inflation expectations. Typically, higher inflation expectations lead to a repricing in the long end of the Treasury yield curve, as investors demand a higher-term premium to compensate for the corrosive effect of inflation on real returns.

"We retain a bearish bias on bonds, but recognize that while the result has reduced downside risks to our growth outlook, it has also widened the distribution of potential outcomes," the team said.

President-elect Donald Trump announced that Reince Priebus would be his chief of staff, while Stephen Bannon would assume the role of chief strategist and counselor. The selection of Priebus was seen by analysts as favorable to equity markets.

(END) Dow Jones Newswires