10-year Treasury yield jumps above 5%
Benchmark note tumbles on worries about rising rates, inflation; bond guru Bill Gross turns bearish; dollar splits.
NEW YORK (CNNMoney.com) -- Treasury bonds plunged Thursday on growing worries about rising interest rates worldwide, sending the yield on the 10-year note to 5.13 percent - the highest in 11 months - and prompting bond guru Bill Gross to turn bearish on the Treasury market.
The dollar rose against the euro and eased versus the yen.
Stocks sank along with bonds as investors worried that upward pressure on rates would make it harder for Americans to finance home purchases and for companies to borrow money, slowing growth - and denting corporate earnings.
The Dow industrials tumbled 199 points, bringing its three-day loss to more than 400 points, or about 3 percent.
In the bond market, the 10-year note tumbled 1-8/32, or $12.50 on a $1,000 note, to yield 5.13 percent, the highest since last July and up from 4.97 percent late Wednesday.
The 30-year bond plunged 2-3/32, or $20.63 on a $1,000 note, to yield 5.23 percent, up from 5.08 percent in the previous session. Bond prices and yields move in opposite directions.
The 5-year note fell 20/32 to yield 5.08 percent, while the 2-year note lost 4/32 to yield 5.03 percent.
Yields on many issues posted their biggest one-day spike in seven months, according to Reuters - furthering a selloff that started a few days ago on fears of higher interest rates.
Bonds have come under pressure in recent sessions after a series of reports pointed to a pickup in economic growth - and possibly inflation - and convinced many investors that rate cuts by the Federal Reserve were off the table, and that the central bank might actually have to raise short-term rates later this year.
"The main mentality in the bond market is to phase out all those rate cuts that were once priced in. It's happening all around the world," Robert Zukowski, a technical analyst at 4Cast Ltd, told Reuters.
Other factors that fueled selling Thursday: an unexpected rate hike in New Zealand and talk of a rate hike in Australia, a day after the European Central Bank raised its key rate a quarter point to 4 percent - and hinted at further hikes to come.
Then bonds sank even further late Thursday after Gross said he expects strong economic growth worldwide to push up global interest rates and put a damper on the Treasury market.
A long time bond market bull, the PIMCO manager said he's now a "bear market manager" and has raised his forecast for the yield on the benchmark 10-year note to 4 percent to 6.5 percent, up from last year's forecast of 4 to 5.5 percent.
The ECB rate hike Wednesday brought rates across much of Europe to the highest level in nearly six years as the central bank tries to ward off inflation, given strong economic growth.
A U.S. government reading on productivity Wednesday showed it had slowed in the first quarter - and that labor costs had jumped - creating more anxiety that U.S. rate hikes could be on the way.
"The market is slightly worried about interest rates rising and the fact the Fed does not seem to be willing to entertain the thought of cutting rates any time in the near future," Richard Sparks, an analyst at Schaeffer's Investment Research in Cincinnati, told Reuters.
The Fed raises rates when it wants to slow the economy and fight inflation, and cuts them to spur growth.
Elsewhere, new state jobless claims fell 1,000 to 309,000 last week, just below economist expectations, according to the Labor Department.
Inventories at wholesalers rose 0.3 percent in April as stocks of non-durable goods posted the biggest percentage increase in five months, the Commerce Department said.
With the climb in interest rates, the dollar rose against the euro, though it edged lower against the yen.
The euro traded at $1.3429, down from $1.350 late Wednesday. The dollar stood at ¥120.91, down from ¥121.05 in the previous session.