Treasury Selloff Resumes Amid Oil Surge, Debt-Limit Agreement

(Bloomberg) -- Treasuries resumed falling Thursday, sending the 10-year note’s yield to the highest level since mid-June, after Senate leaders agreed to temporarily raise the debt ceiling, while rising oil prices added to inflation pressure. 

The 10-year yield rose as much as 5.1 basis points to 1.571%. It’s climbed 27 basis points since the Federal Reserve’s Sept. 22 policy meeting, when it was announced that asset-purchase tapering could begin as soon as November. 

Risk appetite picked up across markets after Senate leaders said they were near an agreement on a short-term debt ceiling increase that would remove the threat of an October debt default. Oil, which traded at seven-year highs this week, erased a daily decline after the U.S. Energy Department said it has no plans to tap oil reserves. 

In the Treasury bills market, investors began to reprice the default risk of late-October-maturing after Senate Republican leader Mitch McConnell acceded to a short-term resolution Wednesday. Yields on bills maturing in December rose, however, anticipating another showdown at that time. 

Traders’ focus has turned to Friday’s September employment report, which is expected to show a recovery in job growth last month. Earlier, a government report showed applications for unemployment benefits retreated last week to the lowest in a month in a broad-based decline. 

“I suspect we’ll need to have tomorrow’s jobs numbers in hand before the market will be willing to push the move much further,” said Ben Jeffery, an interest rate strategist at BMO Capital Markets. Considering the recent jump in yields, Treasuries “have room to rally from here, if we see the non-farm payroll come in below forecasts,” he said.

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