10-year yield hits highest level since May on strong economic data

The benchmark used to determine mortgage rates reached its highest level since May after the release of strong U.S. economic data.

The yield on 10-year Treasury note rose to 3.096 percent, its highest level since May 18, before slipping to 3.078 percent.

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Weekly jobless claims fell to their lowest level in nearly 49 years last week, totaling 201,000, according to the Labor Department. Economists polled by Reuters expected claims to come in at 210,000.

"It's impressive to see the labor market besting last week's historic low. It's also propelling key sectors, like consumer discretionary and retail, since there is a greater universe of consumers opening their wallets," said Mike Loewengart, vice president of investment strategy at E-Trade. "That said, a big question is how much lower these numbers can go given there are only so many jobs and people participating in the economy."

The Philadelphia Federal Reserve index, meanwhile, rose to 22.9 in September from 11.9 in August.

The rise in yields come ahead of an expected rate hike from the Fed. The central bank is largely expected to raise rates next week. Market expectations for a rate hike this month are more than 90 percent, according to the CME Group's FedWatch tool.

Bill Northey, senior vice president at U.S. Bank Wealth Management, said the Fed may "allude to the potential impact of trade skirmishes" on the economy, but is not expecting any surprises from the central bank.

On Monday, the U.S. administration announced that it would inflict 10 percent tariffs on $200 billion worth of Chinese imports, which would rise to 25 percent by year-end.

China retaliated Tuesday by announcing levies targeting over 5,000 American products worth $60 billion and to go into effect next week. However, these tariffs are seen as less harmful than previously feared.