(Bloomberg) -- A wave of selling across European sovereign debt and surging commodities prices are giving Treasury-market bears their mojo back.
The benchmark 10-year Treasury yield reached 2.93 percent Thursday, within about 2 basis points of the 2018 high touched in February. The slump in the world’s biggest bond market came as U.K. gilts slid along with German bunds amid a burst of supply out of Western Europe.
Rallying commodity prices are adding to the pressure on government debt. Crude oil rose to its highest since 2014, weighing on longer-maturity Treasuries and leading the yield curve from 5 to 30 years to steepen for the first time since April 5. While optimism over global growth was the driver for higher yields in February, this time it’s commodities, according to Weeden & Co.
The increase in Treasury yields “feels more like a momentum-based thing,” said Jay Mueller, senior portfolio manager at Wells Capital Management. While there’s concern about supply, “the best candidate is more worrisome inflation data, not only here but around the globe.”
The gap between 2- and 10-year Treasuries widened Thursday by about four basis points to 48 basis points. It narrowed to as little as 41 basis points Wednesday, the smallest differential in more than a decade.
The prospect that costlier commodities might stoke price pressures helped boost the outlook on inflation-linked debt. The breakeven rate signaled by 10-year inflation-linked Treasuries rose to 2.19 percent Thursday, the highest since 2014.
Gilts led the European bond slump as the prospect of supply coincided with the end of the latest round of Bank of England buybacks. The yield on 10-year U.K. debt surged about 10 basis points to 1.52 percent, while yields on similar-maturity German securities rose 7 basis points to 0.6 percent.
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