Bonds

10-year yield continues rapid climb, hits the highest since June

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Jim Paulsen: Rising real yields is a sign of real growth

The benchmark 10-year U.S. Treasury yield rose again on Tuesday, trading at its highest levels since June and continuing a steady increase that began last week.

The yield on the benchmark 10-year Treasury note rose 6.2 basis points to 1.546% after hitting 1.567% earlier in the day. The yield on the 30-year Treasury bond added nearly 10 basis points, spiking to 2.094%. Yields move inversely to prices and 1 basis point is equal to 0.01%.

Federal Reserve Chairman Jerome Powell, in prepared remarks delivered to the Senate on Tuesday, warned that higher inflation may last longer than anticipated. The central banker said that economic growth has "continued to strengthen" but has been met with upward price pressures caused by supply chain bottlenecks and other factors.

"Inflation is elevated and will likely remain so in coming months before moderating," Powell said.

Treasurys

Last week, the Fed indicated that it may soon begin pulling back its asset purchases. The central bank's updated economic projections also showed that half of the major Fed officials now see a rate hike in 2022.

The updates from the central bank appear to have sparked a rise in yields across the time curve. The 10-year yield's rise comes after the bonds traded at 1.30% at the end of August. The 30-year Treasury is trading at its highest yield since early July, while the 5-year yield is at its highest level since early 2020, before the Covid pandemic hit the United States.

The 10-year is now trading at a key level that could prove to be an inflection point for an even bigger move, according to Tom Essaye of the Sevens Report.

"Focus now turns towards the all-important mid-1.50% range, which is the trendline from the highs in the 10-year yield from back in late March. If economic and inflation data is solid this week, and the 10-year yield can breakthrough the mid-1.50% range and close near (or above) 1.60% this week, investors will look for a continuation of the rise in yields back to that March high of 1.74%," Essaye said in a note to clients on Tuesday morning.

The steps toward monetary tightening from the Fed and other central banks come as investors are still worried about inflation pressures, with rising energy prices in Europe being one of the latest concerns.

"It's quite clear that a global hiking cycle had already started before the recent mini energy crisis. Will this renewed spike in energy costs mean central banks accelerate this ... or will it hit demand enough that it actually slows them down? This is an incredibly delicate and difficult period for central banks," Deutsche Bank's Jim Reid said in a note to clients.

On the data front, the July S&P/Case-Shiller home price index showed that prices were up 19.7% year over year during that month. The Conference Board consumer confidence reading came in at 109.3, below the 114.9 expected by economists surveyed by Dow Jones.

In addition, investors will continue to monitor the progress of the $1 trillion infrastructure bill in Washington. Lawmakers must act on a funding plan before the government faces a shutdown Friday. 

An auction was held on Tuesday for $62 billion worth of seven-year bills.

CNBC's Jeff Cox and Maggie Fitzgerald contributed to this market report.