10-year Treasury yield flirts with 5%
Benchmark yield touches fresh near four-year high as rate jitters intensify; dollar gains.

NEW YORK (CNNMoney.com) - Bonds tumbled Friday, lifting the yield on the benchmark 10-year note to just a shade below the key 5 percent level, as investors bet the Federal Reserve would keep hiking interest rates longer than previously thought.

The dollar gained.

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The 10-year Treasury note fell 15/32 to 96-14/32 to yield 4.96 percent, up from 4.90 percent late Thursday.

After the unofficial market close at 3 pm ET, the yield inched even higher to 4.98 percent -- its highest since June 2002. The further rise in yields came after St. Louis Federal Reserve Bank President William Poole said in a televised interview that a 5.25 percent fed funds rate was "reasonable now" and hinted the central bank would want to take a safe course in trying to keep inflation at bay, Reuters reported.

"There are always risks on both sides. There are risks that we would stop too soon and risks we would stop too late, and what we have to do is find the best balance we can between those two risks," Poole reportedly said on TV.

The 30-year bond tumbled, sending the yield above 5 percent for the first time since December 2004. The 30-year bond lost 31/32 to 91-24/32 to yield 5.04 percent, up from 4.97 in the previous session. Bond prices and yields move in opposite directions.

The five-year note declined 7/32 to yield 4.89 percent. The two-year note dipped 2/32, yielding 4.88 percent.

Treasuries sank as investors digested a strong March employment report and hints from a Fed official that more rate hikes were to come.

Bonds, already under selling pressure, fell further after the interview was televised late in the afternoon. Poole is not a voting member on the interest rate setting Federal Open Market Committee this year.

The big economic release of the day -- and the month -- showed employers added 211,000 jobs in March and the unemployment rate unexpectedly slipped back to near a 5-year low at 4.7 percent, the Labor Department said Friday.

The pace of hiring last month was stronger than the 190,000 jobs that had been forecast by analysts, who also had expected the unemployment rate to be unchanged from February's 4.8 percent.

The average hourly wage grew just 0.2 of a percent to $16.49, which was less than the 0.3 of a percent rise forecast by economists.

The tamer-than-expected wage growth initially lent support to Treasuries prices, calming concerns about potential inflation pressure, but then prices turned lower as investors looked at the overall strength of the report.

Stocks reacted similarly, rising at the open before tumbling on the prospect of more rate hikes. (Full story.)

"There is the view that the Fed is going to 5.25 percent and that pushes yields higher," John Herrmann, director of economic commentary at Cantor Fitzgerald, said.

Treasury yields have been steadily rising ever since the Fed raised its target for the fed funds rate, an overnight lending rate, for the 15th straight time last month to 4.75 percent.

As the Fed prepares to wind down its now 21-month old rate hiking campaign, investors are searching for signs of when the central bank will be ready to pause.

The market has already priced in another hike to 5 percent next month, and futures contracts show investors are now factoring in a 60 percent chance of another quarter-point hike in June, according to Reuters.

Inflation hurts bonds as it erodes the value of the fixed-income investment. But rising interest rates generally help the dollar as they make dollar-denominated securities more attractive to foreign investors.

In currency trading, the dollar rose.

The euro bought $1.2105, down from $1.2224 late Thursday while the dollar bought 118.28, up from 117.73 the previous session.


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