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Published: Wed, April 25, 2018
Economy | By Melissa Porter

USA 10-year bond hits 3% yield for first time since 2014

USA 10-year bond hits 3% yield for first time since 2014

Worldwide investors see US government bonds as a close substitute for those of other large advanced economies, so moves in one market - particularly the Treasury market, as the largest - tend to spill over into others, research shows.

The bond market is getting very exciting because the yield on the 10-year Treasury has finally crossed 3%. That followed a jump in profits at Google parent Alphabet late Monday. For example, were the core USA inflation rate were to print 2.5 percent, which is about 0.5 percent higher than where we are at present then the "neutral rate" would be rapidly adjusted upwards, which would also be performed for other macro variables.

The pivot in Fed policy toward more stringent lending, Bianco said, has also buoyed the two-year yield higher at an even faster pace, shrinking the spread between the two rates to 0.5 percentage point, down from 1.25 percentage points at the end of 2016. The Nasdaq composite gave up 0.2 per cent to 7,128.60.

Small-company stocks held up better than the rest of the market. The Russell 2000 index declined 8.84 points, or 0.6 percent, to 1,553.28, about half as much as the S&P 500, which tracks large US companies. It reported strong digital ad sales and an accounting adjustment. Other big technology companies also fell, as Facebook dropped 3.7 percent to $159.69 and Microsoft skidded 2.3 percent to $93.12.

For example, former Fed Chair Janet Yellen has asserted that the US economy will be a 1 percent real rate economy in the medium term, and the day that is the case then a 3 percent neutral rate will come immediately in play. Defense contractor Lockheed Martin sank 5.9 percent to $337.49 and Boeing lost 2.3 percent to $330.91. But expenses also rose. The Philadelphia Stock Exchange semiconductor index fell 1.3 percent Monday, extending its four-day slide past 6 percent.

Oil price increases are a "relative price change" and not inflation of itself.

As the U.S.'s 10-year Treasury yield hit 3.001 percent, Germany's 10-year Bund yield rose to as high as 0.652 percent. Earlier it peaked at 3 percent for the first time since January 2014.

Low interest rates have played an important role in the economic recovery of the last decade, and the yield on the 10-year note is a benchmark for many kinds of interest rates including mortgages. With the Fed no longer buying bonds and investors expecting greater inflation, analysts say higher yields could make bonds more attractive than stocks. The Federal Reserve has pointed to raising inflation since the start of the year, while companies including Kimberly-Clark and Whirlpool warned earlier Tuesday of the same trend.

SHIRE'S WILD RIDE: Drugmaker Shire rallied again as the company said it is considering a new offer from Japanese rival Takeda. It rose 0.4 per cent to $68.64 a barrel in NY. That pushed stocks higher by making bonds less appealing by comparison. In its $32 billion two-year sale, the notes drew a yield of 2.498 percent, the highest since 2008. The stock gained 6.8 percent to $73.79.

The dollar edged up to 108.67 yen from 108.65 yen. Wholesale gasoline rose 1.3 percent to $2.12 a gallon.

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