Treasury prices fell on Wednesday, leaving yields on track to rise for a third straight day—what would be the longest streak since mid-December.
The yield on the 10-year Treasury TMUBMUSD10Y, +0.89% rose 2.6 basis points to 2.539%, its highest level since Dec. 28, while the yield on the 30-year bond TMUBMUSD30Y, +0.55% rose 1.6 basis point to 3.114%. The yield on the two-year note TMUBMUSD02Y, +0.65% rose 1.2 basis point to 1.247%.
President Donald Trump started the process of enacting his campaign promises this week by signing a flurry of executive orders, including one authorizing the construction of his promised wall between the U.S.-Mexico border.
Trumps actions have revived expectations that his administration will aim to implement a slate of purportedly pro-growth fiscal policies like infrastructure spending, tax cuts and deregulation. These policies, market strategists say, will likely drive up workers’ wages, eventually causing inflation to accelerate, while also widening the federal government’s budget deficit—forcing the government to expand the supply of Treasurys. Typically, when inflation is expected to rise, bond investors demand higher yields to compensate for rising consumer prices.
It’s also believed that higher inflation would force the Federal Reserve to raise interest rates more quickly than previously thought, said Robert Tipp, chief investment strategists at Prudential Fixed Income.
“The markets are optimistic about the Fed rate hike scenario of more than two hikes per year for the next couple of years,” Tipp said. In a set of projections released in December, a plurality of Fed policy makers showed they expect three rate increases this year.
U.S. stocks broke out to record highs on Wednesday as the Dow Jones Industrial Average DJIA, +0.20% closed above the 20,000 milestone for the first time. This has drawn some investors away from bonds and back into equities, Tipp said.
The Treasury will auction $ 28 billion in seven-year notes TMUBMUSD07Y, +1.12% at 1 p.m. Eastern on Wednesday.