After dropping to a recent low of 1.66% in early May, the yield on benchmark U.S. 10-year treasury notes rose more than 50 bps in the last 30 days to its highest in more than 13 months. Some reasons for the recent rate increases include:
- Data from the Conference Board showed US consumer confidence in May rose to its highest level in more than five years, and the Case-Schiller index said the annual rise in home prices was the strongest for seven years. Signs of an improving economy lead the Fed to suggest it might start to slow their mortgage purchase program.
- According to research firm TrimTabs, investors have pumped more than $60 billion into mutual funds and ETFs that hold U.S. stocks so far this year. That’s already more than any full calendar year since 2004. If the pace keeps up, this year’s inflow would be the largest since 2000. The Dow Jones Industrial Average is up 16% YTD.
- Bids for treasuries continue to decline with the Treasury’s $35 billion sale of two-year debt on May 28 attracting the fewest bids for the securities in 25 months. Bloomberg reported that Investors have bid $2.99 for each dollar of the $876 billion in Treasury notes and bonds sold at auction so far this year compared with a record bid-to-cover ratio of $3.15 set in 2012.
- The Bank of Japan has their own asset purchase program to inflate their economy by aggressively buying bonds and increasing their holdings. Some of this money would have otherwise been allocated to purchasing U.S. Treasury bonds.