The yield on the 10-year U.S. Treasury note just passed 3.0% for the first time since July 2011.
Reuters’ Jennifer Ablan tweeted the news at 4:48 p.m. ET.
For much of the day the yield had been sitting above just above 2.9%.
Interest rates started to rally notably in back in May, which was when the Federal Reserve began to warn the markets that it would begin to taper its quantitative easing program (QE).
QE, formally known as the large-scale asset purchase program, consists of the monthly purchases of $US45 billion worth of Treasury bonds and $US40 billion worth of mortgage bonds.
QE has helped keep government borrowing costs and mortgage rates extremely low.
Fed Chairman Ben Bernanke said the tapering could begin this fall if the health of the labour market and the direction of inflation could support it.
Here’s Bernanke on June 19: “If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year; and if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear.”
Most market economists have projected that the taper would be announced on September 18 at the conclusion of the Federal Reserve’s next two-day Federal Open Market Committee (FOMC) meeting.
However, all economists have also said that the Fed would likely wait for the August jobs report, which comes out on Friday morning, before it makes any final decisions.
The Jobs Report
“August employment takes on more significance than usual because it is the last employment report that Fed policymakers will have before they sit down for a two-day FOMC meeting later this month (September 17-18),” wrote Deutsche Bank’s Joe LaVorgna in a note to clients today.
Most indicators have confirmed that the August jobs report would come in at least near the 180,000 currently forecasts by economists.
Earlier today, we learned that the four-week moving average for initial unemployment insurance claims fell to its lowest level since October 2007. Minutes later, we learned that the August employment sub-index of the widely-followed ISM services index surged to 57.0 in August from 53.2 in July.
“While the ISM employment measures are not the best m/m indicator of employment growth, they are certainly consistent with a strengthening trend,” said UBS’s Drew Matus. “Taken with the continued improvement in jobless claims along with other recent positive labour-related data, we have pushed up our payroll forecast for August. We now expect 210k on payrolls (cons: 180k), up from our earlier 170k estimate.”
Economists including those at JP Morgan and Nomura also said that the ISM report presented “upside risk” to tomorrow’s jobs report.
All of this firmed the conviction of those forecasting a September taper.
Here’s a year-to-date look at the 10-year yield via Bloomberg.com.