As a continuation of Treasury securities selling, 10-year Treasury note yield went above to 5.1 percent, during a month period. This is the highest point that the 10-year Treasury yield reached since July. Yields of Treasury notes with 2.5 and 30 years maturity period also rose to 5 percent.
Michael Metz, chief investment strategist for Oppenheimer & Co., said:"You've had a big, sudden surge in interest rates that caught a lot of people off guard."
Treasury market sell-off was one of the examples, which had many reasons, but one effect of self-reinforced selling that might last for a few more days before it is spent.
The Jones Dow index decrease equaled to 198.94 points, or 1.5 percent, to 13,266.73, and for the last three days it lost 410 points. The Standard & Poor's 500 and the Nasdaq composite index both fell for 1.8 percent.
When New Zealand's central bank suddenly raised its benchmark short-term interest rate, the Asian market got in confusion.
David Oser, senior vice president for investments at ShoreBank, mentioned: "Why anyone would focus on New Zealand is beyond me, but we saw a sell-off in bonds overnight. The effect of New Zealand on our markets is nil."
Roseanne Briggen, Treasury market analyst for Informa Global Markets, said:"ÂNonetheless, a larger-than-expected increase in employment last month in Australia, reported Thursday, could prompt that nation's central bank to join the global parade of higher rates"Â
The European Central Bank also raised its short-term rate and is analysts expect that it will raise rates again during this year.
Colin Robertson, director of fixed income at Northern Trust, said "It's an expectation that global growth is more positive than market participants had felt. There may be other central banks that are going to raise rates, and the market would expect our rates to rise also."
"If the Fed isn't going to ease, then we better start worrying about them tightening," said David Oser, senior vice president for investments at ShoreBank,"That's what's at the bottom of this."
This situation increased the yields for the fixed-income securities, which became competition for stocks. Many investors are reviewing their portfolios, and give preference to safer fixed income securities.
Such high interest rates also can be viewed as a real threat to corporate profits, as well as the economic situation in general. The reason is that 10-year Treasury note yields are taken as benchmark for calculating many home mortgage interest rates. If the mortgage rates rise, the housing sector will be negatively affected.
"Every time rates go up, the probability that somebody is going to prepay that mortgage goes down," said Briggen, Treasury market analyst for Informa Global Markets.
"That exacerbates the whole scene," said Briggen. "You have more mortgages to hedge as rates go up. As they sell more Treasuries, rates go higher."
However short-term investments rates, which also includes money-market funds, have staied the same in recent weeks, while longer-term rates have increased sharply. The result is that a lot of low-yielding cash is available for buying stocks or bonds.
Robertson mentioned: "I would project over 2007 that 10-year rates would trend back into a 4.5 percent-to-5-percent range. If I feel that way, then at 5.1 percent I'm very confident in buying the [Treasury] market. I don't think we are far away from that." - Alla Harutyunyan for HULIQ.COM
