The generic 10 year US Treasury yield closed at 2.2097% today and touched 2.2296%, the highest rates for this benchmark security since April 5th last year.
Friday's employment situation report, noting 175,000 new jobs created in May and a 0.1% rise in the unemployment rate to 7.6% while April annual inflation was just 0.7% in the personal consumption expenditure deflator, seems to have convinced the credit markets that the economy is strong enough so that the Fed will not have to provide additional support.
If the economy continues to improve then the next Fed move, whether in two months or six will be to curtail or end its $85 billion a month MBS and Treasury purchase program. By the time that becomes acknowledged Fed policy it is quite likely the credit markets will have already completed the majority of its rate adjustment.
Since the May 2nd close at 1.6255%, a little over five weeks ago, the 10-year Treasury yield has climbed 58 basis points. It has been steepest rise in yields since the end of 2010 when yields rose from 2.2920 on October8th to 3.3279 by December 17th, 94 basis points. The recovery from the financial crisis induced sell off of the fall of 2008 also saw a dramatic rise in Treasury yields. That recovery took the 10-year yield from 2.1231% on December 19th 2008 to 3.0131% on February 27th and 3.7916% on June 12th, gain of 89 and 167 basis points respectively.
Chief Market Strategist