Tue | Jun 22, 2021

Bond market sees a stronger economy

Published:Thursday | March 15, 2012 | 12:00 AM

The bond market is betting on a stronger economy.

Prices for US Treasury debt plunged for the fifth straight trading session Wednesday, and the yield on the benchmark 10-year note spiked to its highest level since October.

Money poured out of bonds and into stocks after rosy words on Tuesday from the Federal Reserve gave traders confidence that the economic recovery is strengthening. Major stock market averages are at or near four-year highs.

Treasury yields - and interest rates that take their cues from Treasury yields, including mortgage rates - remain near all-time lows. So while mortgage rates may creep up, they should remain historically low.

Even with the economy getting stronger, the Fed plans to keep short-term interest rates near zero through 2014. And demand is strong for long-term Treasurys because the dollar and the US government still look like safer bets than the euro and other nations.

More evidence of the hunger for US debt came Wednesday afternoon, when the Treasury Department auctioned $13 billion in 30-year bonds. Bids came in higher than current market prices.

The bonds were priced to yield 3.38 per cent. Similar bonds trading on the open market fetched a yield of 3.41 per cent.

The yield on the 10-year Treasury note was 2.28 per cent as of 2 p.m. Wednesday. It hasn't closed above that level since October 28, but the yield is far lower than the 3.36 per cent level where it settled a year earlier.

- AP