The extra yield U.S. 10-year Treasuries offer over their German peers widened to the most since January as U.S. economic data kept alive prospects of the Federal Reserve raising interest rates this year, which contrasts with the European Central Bankâ€™s accommodative stance.
Treasuries fell a second day on Monday, with the 10-year note yield rising to the highest level in a month. U.S. government securities dropped Friday after a Labor Department report showed that the nationâ€™s jobs growth was strong enough to maintain wagers of the Fed tightening policy this year.
â€œThere is such a big difference betweenâ€ Treasuries and bund yields, said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. â€œBunds are heading towards zero and Treasuries are heading towards 2 percentâ€ due to the â€œcomplete divergenceâ€ between ECB and Fed policy, he said.
Benchmark Treasury 10-year yields climbed three basis points, or 0.03 percentage point, to 1.91 percent as of 7:45 a.m. New York time Monday, according to Bloomberg Bond Trader data. Thatâ€™s the highest yield since Feb. 2. The 1.625 percent note due in February 2026 fell 9/32, or $2.81 per $1,000 face amount, to 97 15/32. The yield on German 10-year bunds dropped two basis points to 0.22 percent, widening the yield spread between the securities to 169 basis points, the most since Jan. 5 based on closing prices.
â€œWe are looking for some type of stabilization in the economic and market situation, which allows the Fed to gradually hike rates going forwardâ€ Callan said.
USA -German yield gap widest since January on policy divergence