By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices slid Friday, extending a massive selloff in the government bond market to a third straight day after the Federal Reserve indicated it may scale back its bond-purchase program later this year.
The 10-year note yield 10_YEAR +2.90% temporarily passed a 2.5% threshold, rising as high as 2.511% before falling back to 2.485%. That puts the benchmark note on track to close at its highest level since August 2011, according to Tradeweb.
Chairman Ben Bernanke said Wednesday that the Fed could begin scaling back its pace of bond purchases later this year if data continue to show economic improvement. That signal of an eventual end to easy monetary policy telegraphed to jittery markets that the Fed could pull the rug out before the economy is ready, sending the 10-year roughly 30 basis points higher since before the speech.
The 30-year bond 30_YEAR +1.08% yield was up 2.5 basis points at 3.543%, and the 5-year note 5_YEAR +5.50% yield was up 7 basis points at 1.376%.
“The market is very sensitive and very thin so any type of move can push the market pretty far. The market is still trying to digest what Bernanke said Wednesday,” said Jason Rogan, managing director of U.S. Treasury trading with Guggenheim Partners.
St. Louis Fed President James Bullard said Friday in a dissent from the Fed’s policy decision this week that a wind-down of asset purchases later this year would be badly timed given low expectations of inflation and growth.
But the global selloff across markets following Bernanke’s comments demonstrates the difficulty of reining in expectations.
“We do think that the market has crossed the Rubicon and Bernanke has unleashed a torrent of pent-up selling, which it is not completely clear at this stage he is prepared for,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities, in a note.
That was perhaps reflected in the news that investors continued to rush to the exits of exchange-traded funds Friday, pushing some ETFs to trade below the value of their underlying assets, according to a report in the Financial Times. Some traders had to stop accepting redemptions due to the high demand for selling, according to the report.
Across the Atlantic, fears that Greece’s unstable governing coalition could break down sent its bond yields dramatically higher Friday. The 10-year Greek bond yield traded up 50 basis points on the day at 11.049%, according to Tradeweb.
U.S. stocks turned lower, while the dollar continued to gain on Friday.
Ben Eisen is a MarketWatch reporter based in New York.
