10-year yield tops 5%
Debt prices sink on comments by Fed's Kohn and retail sales data pushing benchmark to highest level in four years, dollar edges lower.
NEW YORK (CNNMoney.com) - Treasury prices slid Thursday ahead of the holiday weekend, pushing up the yield on the 10-year note above 5 percent for the first time in four years as investors speculated that the Fed was not done with its rate hike campaign.
The 10-year Treasury note fell 15/32 to 95-26/32 to yield 5.04 percent, up from 4.98 late Wednesday and its highest since June 2002. Bond prices and yields move in opposite directions.
Ten-year yields have surged as much as 70 basis points, from lows to highs, in the past three months as investors see the Fed raising short-term rates more than originally expected and market players have unwound bets for the yield curve to flatten.
The 30-year bond slipped 27/32 to 91-20/32 to yield 5.11 percent, up from 5.06 percent in the previous session. On Friday, the yield rose above five percent for the first time since December 2004.
The five-year note fell 8/32 to yield 4.97 percent. The two-year note was down two ticks, yielding 4.95 percent.
Speaking in Oklahoma City Thursday, Fed Governor Donald Kohn said that capacity utilization and the unemployment rate were running in ranges that have previously been linked with inflation.
Bond traders fear inflation since it erodes the value of the fixed income investment.
His comments added to speculation that the central bank will have to continue its rate hike campaign to keep the economy from overheating and rein in inflationary pressure.
Analysts added the likelihood of future rate hikes forced investors to think twice before buying in.
"Most bond investors believe on a global level that buying bonds today will mean jumping in at a time when bond market yields are expected to go higher in the short to medium term," Matthew Smith, vice president of Smith Affiliated Capital told Reuters.
Earlier in the session, investors took their lead from the March retail sales data, which rebounded moderately from a poor showing in the previous month, helped by an increase in automobile purchases, the Census Bureau reported.
Investors believe strong economic data could support the case for more rate rises from the Fed after a widely expected increase to five percent in May.
Since June 2004, the Federal Reserve has raised interest rates to 4.75 percent from a four-decade low of one percent.
Investors were largely unfazed by an increase in the number of jobless claims and a surprising dip in import prices. A separate report showed a slight gain in consumer sentiment so far this month.
Bond markets will be closed for the Good Friday holiday.
In currency trading, the dollar fell slightly against the euro and the yen. The euro bought $1.2108, up slightly from $1.2107 late Wednesday, while the dollar bought ¥118.46, down slightly from ¥118.54 in the previous session.
-- from staff and wire reports
Long-term bond market rates are finally rising. How far will they go? Click here.