U.S. government debt yields rose Wednesday after a soft Treasury auction, back to the levels that coincided with Friday's stock market sell-off. Yields also rose on the back of a new budget compromise among congressional leaders.
The yield on the benchmark 10-year Treasury note added about 7.5 basis points to hit 2.845 percent at 4:05 p.m. ET, while the yield on the 30-year Treasury bond also rose roughly 7 basis points to 3.117 percent. Bond yields move inversely to prices.
Rates added to their remarkable comeback after a sharp drop in stocks spurred a slew of bond purchases earlier in the week. The yield on the 10-year note has climbed roughly 20 basis points over the past two days, currently near highs of 2.85 percent, still shy of its 4-year high of 2.88 percent it reached Monday.
After two major sell-offs on Friday and Monday, leading U.S. indexes saw sharp swings, with the Dow Jones industrial average starting Tuesday significantly lower, before rallying and closing up more than 550 points.
Reasons for the rising trend in yields include fears over higher inflation and that the Federal Reserve could move to hike rates liberally in 2018. But Wednesday's move appeared to be the result of both a weak appetite for 10-year notes as well as a new, more expensive budget from Congressional leaders.
Senate leaders announced that they had reached a two-year budget agreement Wednesday afternoon. The deal, which would boost current spending caps by about $300 billion, would include a significant allocation for military spending as well as funding for disaster relief and infrastructure.
Meanwhile, the Treasury Department auctioned $24 billion in 10-year notes at a high yield of 2.811 percent. The bid-to-cover ratio, an indicator of demand, was 2.34. Indirect bidders, which include major central banks, were awarded 67.5 percent. Direct bidders, which includes domestic money managers, bought 5.4 percent.
"We've had a series of kind of softish auctions anyway," said John Briggs of NatWest, referring to the move in yields. "More interesting is that the budget deal is helping to push yields higher in general."
Though yields trended upward throughout the day on fears of more Fed rate hikes, Chicago Fed President Charles Evans said he'd be comfortable keeping central bank policy on hold until mid-year. The extra time would allow officials to better determine the current state of inflation, he argued.
Evans added that he doesn't see inflation reaching the Fed's 2 percent target until late 2019 or early 2020. He has historically been more dovish on rate hikes, but is not a voting member of the Fed's interest-rate-setting committee this year.