10-year yield at 5-year high amid selloff

NEW YORK (CNNMoney.com) -- The yield on the benchmark 10-year note rose to its highest level in five years Tuesday, as traders continued to worry about interest rates amid inflation fears and robust global economic growth.

The dollar rose against the euro and eased against the yen.

The benchmark climbed as high as 5.3 percent Tuesday, but finished 29/32 lower, or $9.06 on a $1,000 note, to yield 5.29 percent, up sharply from 5.14 percent Monday.

The 30-year lost 1-26/32, or $18.12 on a $1,000 note, to yield 5.39 percent, up from 5.24 percent the previous session. Bond prices and yields move in opposite directions.

The 5-year lost 16/32 to yield 5.20 percent, while the 2-year fell four ticks, yielding 5.10 percent.

With no major economic reports on tap, bond traders focused on news that consumer price inflation in China reached its highest level in over two years last month, due to rising food prices.

Investors have been watching the bond market closely amid renewed fears of inflation, prompting some to speculate that the Fed will not cut interest rates in 2007.

That fear sent bond prices tumbling last Thursday, pushing the benchmark 10-year yield above 5 percent for the first time in 11 months.

Market sentiment, already bearish, also took a knock from a mixed auction of reopened 10-year Treasury notes, that highlighted diminishing interest from overseas buyers, Reuters reported.

"The last one out the door, please turn out the lights. There are no buyers. No one is stepping in," Chris Rupkey, vice president and senior financial economist at Bank of Tokyo/Mitsubishi UFJ, told Reuters.

"The 5.25 percent yield is a very important level and the mortgage hedges are kicking in," Rupkey said. "Given the speed of the market's descent, there's not a lot of support here. The yield could go to 5.50 percent. People are very nervous."

The euro bought $1.3302 down from $1.3350. The dollar bought ¥121.68 down from ¥121.76 unchanged from the previous session.

--from staff and wire reports