Treasury Yields Rise on Upbeat Data, Stock Rally

Treasury bond investors are growing increasingly worried that their long bull run is over.

The raft of better-than-expected economic statistics on Wednesday sent yields on longer-term Treasury securities soaring, as investors dumped bonds on fears that the next big move for yields is up.

Figures on jobs, manufacturing and orders for big-ticket items “solidified the view that the economy’s not as bad as it was perceived to be, and that’s making it a nasty day for Treasuries,” said Gary Cooper, who helps invest about $4.3 billion at Assante Asset Management Ltd. in Winnipeg, Canada.

The yield on the 10-year Treasury note jumped to 4.25% from 4.07% on Tuesday, and now is the highest since Oct. 22. The yield on the five-year T-note surged to 3.31% from 3.12%, and now is the highest since Aug. 27.

The Treasury sold $27 billion of new two-year notes Wednesday at a yield of 2.12%. That was up from the recent low yield of 1.67% on notes of that term on Oct. 9.

Meanwhile, yields on shorter-term Treasuries, such as three-month and six-month T-bills, were little changed Wednesday.

And the average seven-day yield on money market mutual funds fell to 0.96%, down from 1.01% last week and the lowest ever, according to money-fund tracker IMoneyNet Inc.

The Federal Reserve controls short-term rates, and the Fed’s half-point cut in its benchmark rate on Nov. 6, to 1.25%, guarantees that shorter-term yields will stay at or near current levels until the central bank decides otherwise, analysts said.

But longer-term yields are set by the marketplace. And if investors figure the economy is improving, they also may bet that demand for money -- and inflation -- will rise in 2003. Either or both of those factors could drive longer-term yields up.

What’s more, many investors who have piled into Treasury bonds over the last two years, seeking safe haven as the stock market has crumbled, may be inclined to shift their capital back into stocks or other riskier assets if they believe the economy will be OK, analysts said.

Cooper said he sold all of his Treasury holdings last month in the belief that 10-year yields had reached their lows for the year.

Many experts caution that the economic outlook remains murky, and that it may be premature to predict an extended rise in long-term yields.

“We’re still not convinced this is the start of the long-awaited economic recovery,” said Ethan Harris, economist at Lehman Bros. in New York. Even so, he said, “It’s hard for the bond market to ignore” upbeat data such as Wednesday’s reports.

Bloomberg News and Reuters were used in compiling this report.