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Bond Report: 10- and 30-year Treasury yields hit highest levels since late 2018 as stocks sell off

Treasury yields pushed back to the upside Thursday, with maturities from 7 to 30 years out trading at or above 3% a day after the Federal Reserve delivered a widely expected half percentage point interest rate hike on Wednesday.

What are yields doing?

The yield on the 10-year Treasury note

was at 3%, up from 2.914% at 3 p.m. Eastern on Wednesday

The 2-year Treasury yield

was at 2.667%, up from 2.614% on Wednesday afternoon.

The yield on the 30-year Treasury bond

was 3.095%, up from 3.001% late Wednesday.

What’s driving the market?

Treasury yields reversed course on Thursday from the prior session, when they fell after Fed policy makers unanimously agreed to hike the benchmark interest rate by 50 basis points, or half a percentage point. The widely expected move was the first half-point hike since 2000, as opposed to the Fed’s typical quarter-point move.

Chairman Jerome Powell threw cold water on the prospect of an even larger rate move at the next meeting, by saying that a 75 basis point hike wasn’t being actively considered by the Federal Open Market Committee. Half-point hikes, however, would be on the table at the next two meetings in June and July.

Read: Why Powell took 75-basis-point rate hike off the table, and other takeaways from the Fed press conference

The Fed also announced its plan to begin unwinding its nearly $9 trillion balance sheet, starting June 1. Initially, the Fed plans to reduce its holdings by $47.5 billion a month. After three months, the Fed would ramp up to $95 billion a month in asset reductions, a move that could drain liquidity from money markets for years to come.

Meanwhile, the Bank of England on Thursday delivered its fourth hike of the current cycle, lifting its benchmark rate to 1%.

In U.S. data releases, U.S. jobless claims rose by 19,000 to 200,000 for the week ended April 30. That’s the biggest weekly rise in claims since last July and the highest level since mid-February. Economists surveyed by The Wall Street Journal had expected initial claims to rise to 182,000.

First-quarter productivity fell at the fastest pace since 1947 and unit-labor costs soared. The productivity of American workers and businesses sank at an 7.5% annual pace, a reflection of ongoing supply shortages and other drags on the economy. Unit-labor costs surged at an 11.6% annual pace in the first quarter.

The April jobs report is due on Friday morning, with economists looking for nonfarm payrolls to show a rise of 400,000 after a 431,000 jump in March.

See: Economy seen adding 400,000 new jobs in April, but U.S. might be running out of labor

What do analysts say?

“The discussion going forward will thus no longer be about whether the Fed might or might not lift rates by 75bp in the near future, but whether, and if, to what extent the Fed might have to adopt a restrictive monetary-policy stance,” wrote researchers at UniCredit. “Since the path to a neutral level could be completed within just six months, no segment of the [U.S. Treasury or U.S. dollar] swap curves will be immune to spikes in volatility in the course of the discussion about the peak level of this rate-hike cycle.”

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