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Treasury Yields Jump To Five-Year Highs

The yield on the 10-year Treasury note reached its highest level in more than five years Tuesday afternoon, as prices continued to slump amid broad market selling.

The yield tapped as high as 5.27%, a level it last reached in mid-May 2002.

At 5 p.m. EDT, the 10-year Treasury note was down $10.63 per $1,000 in face value, or 1 2/32 point, from its level at 5 p.m. Monday. Its yield, which moves in the opposite direction, rose to 5.30% from 5.16%.

The 30-year bond fell 2 1/32 point. Its yield rose to 5.40% from 5.26%.

The 2-year note fell 6/32 point. Its yield rose to 5.10% from 5.01%.

Yields on 3-month Treasury bills were 4.68% as the discount rate fell 0.07 percentage point to 4.55%.

Treasurys have been under sustained pressure for the last couple of weeks, amid stronger economic data, selling from the mortgage community and the paring back of long positions -- exposure that assumes Treasury prices will rise -- all weighed on the market.

Tuesday's selling again came most heavily in longer-term Treasurys.

There was no particular trigger for Tuesday's selling although some traders pointed to hawkish overnight comments from foreign central banks and an uptick in Chinese inflation. There were no major U.S. data.

That underlines how much of the recent sell-off seems to have been down to market momentum and technical factors such as the scaling back of long positions. In addition, there has been continued selling from mortgage bondholders, who have had to pare back longer-dated Treasurys to reduce the duration in their portfolios as yields spiked.

Also weighing Tuesday was a reopening auction from the Treasury Department. The government sold $8 billion 10-year notes, reopening an issue that was sold last month. The market was under pressure ahead of the sale and tepid demand for the notes briefly led to renewed selling afterwards.

The climb in U.S. yields placed stocks under pressure and helped the dollar to strengthen modestly against the euro.

One of the reasons Treasury yields have faced upward pressure is that investors have been slashing their bets that the Federal Reserve would cut rates at some point in 2007. From pricing in as many as two rate cuts earlier this year, investors in interest rate futures markets now forecast no Fed moves until the middle of next year.

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