US 2-year Treasury yield climbs to highest level since August 2008

The yield on the benchmark 10-year Treasury note and the yield on the benchmark 30-year Treasury bond rose to new multiyear highs early Thursday as a streak of solid economic data continued.

Short-term rates also topped multiyear highs: the yield on the two-year Treasury note reached 2.598 percent, its highest since August 2008, and the yield on the five-year Treasury note hit 2.957 percent, its highest since June 2009.

The yield on the benchmark 10-year Treasury note climbed to 3.122 percent Thursday, its highest mark since July 8, 2011, while the yield on the 30-year Treasury bond hit 3.248 percent, its highest level since July 13, 2015.

The 10-year Treasury rate is especially important given its role in helping set rates for a whole range of business and consumer loans, including home mortgages.

The recent climb in yields comes amid a flood of economic data this week.

On Thursday, the Labor Department said new applications for U.S. jobless benefits increased more than anticipated, but the number of Americans on unemployment fell to its lowest level since 1973.

Initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 222,000 for the week ended May 12, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims rising to 215,000 in the latest week.

The latest figures add to a growing narrative that the labor market is approaching full employment with the jobless rate near a 17-year low of 3.9 percent. The Federal Reserve, which seeks to balance goals of maximum employment and stable prices, has forecast an unemployment rate of 3.8 percent by the end of the year.

Tighter labor markets are usually considered a bellwether of labor input wages in classical economics: When workers are in higher demand, employers will typically have to pay more for their services. Wages, in turn, are often seen as a prelude to higher prices throughout the economy as people spend more as their paychecks grow.

Rising inflation, which threatens Treasury prices because it erodes the purchasing power of their fixed payments, puts upward pressure on rates.

"For the bond investor, it is proper to use the word 'ugly' when describing inflation because that's the real Achilles Heel for the bond market," wrote Kevin Giddis, head of fixed income capital markets at Raymond James. "For a number of years, even after the U.S. economy recovered, jobs were created, and stimulus came to an end, inflation was the one variable that economists and the Fed couldn't put their finger on."

"Well, I think we have arrived at that point," he added. "There is little to stand in the way of a test of 3.25 percent on the 10-year note."


The Commerce Department reported earlier this week that retail sales increased at a decent pace in April, while March's figure was revised upward. The consumer spending gains were spread broadly across the retail industry, with big gains at furniture and clothing stores.

Retail sales data can be important over time given that they correspond closely with the consumer spending component of gross domestic product.

The influx of warmer economic data and promises of tighter policy from the Fed have urged yields higher this month as expectations that prices could rise begin to dawn en mass on Wall Street.

The central bank said on May 2nd that inflation was moving closer to its 2 percent target as input prices creep up across the economy.

Earlier inflation expectations led to a rise in interest rates in February, sparking a widespread equity sell-off as stock traders grew nervous over whether the economy was strong enough to withstand increased borrowing costs.

The Fed next meets on June 12, when it is expected to hike the federal funds rate for the second time this year.

Investors are betting the Federal Reserve will keep its aggressive stance even if it unnerves financial markets a bit. Traders for the first time Monday assigned a 51 percent chance of a fourth interest rate hike this year by the Fed, according to the CME Group.

CNBC's Gina Francolla contributed to this report.