Ahead of bank earnings and inflation data later in the week, investors are keeping their eyes on the 10-year Treasury yield, which continues to spike to multi-year highs. Early Monday, the rate climbed 5 basis points to 2.76%, notching a level last seen in 2019. The momentum gathered pace last week after Fed Vice Chair Lael Brainard said the central bank's balance sheet would be reduced "at a rapid pace" as soon as May, only to be followed up by similar sentiment during the release of FOMC minutes.
Commentary: "Fed tightening is the single biggest theme in global markets right now," said Nomura rates strategist Andrew Ticehurst. "Yields are making fresh highs, so we are likely seeing stops and technical trading contributing to this move."
The tightening cycle in the U.S. is also making way for some interesting shifts as policy diverges across the globe. The yield on China's 10-year government bond fell to 2.75% on Monday, marking the first time it has been below the rate of its U.S counterpart in 12 years. The fading premium comes as Beijing sticks to an accommodative monetary stance as prolonged COVID-19 lockdowns - like the one in Shanghai - weigh on its economy.
Ominous signs? While 5-year and 30-year U.S. Treasury yields remain inverted, the 2s10s curve has steepened since the beginning of April after briefly inverting for the first time since 2019. That was followed by the COVID downturn of 2020, though the last persistent inversion of the Treasury curve occurred in 2006-2007.