Bond yields continued their year-to-date climb on Tuesday with the 10-year Treasury topping 1.87%, its highest level in 2 years. The 10-year yield started the year around 1.5%. Meanwhile, the 2-year rate — which reflect short-term interest rate expectations — topped 1% for the first time in two years.
The move, which comes after a market holiday in the U.S. Monday, indicates that investors are preparing for the possibility of more aggressive tightening by the Federal Reserve. The"2-year yield breaking above 1% is the bond market saying it agrees with the Fed that more aggressive hikes are coming," said Ryan Detrick of LPL Financial."Add those worries with crude flirting with $85 a barrel and stubbornly high inflation, and we have a perfect cocktail for a risk-off day."
The S&P 500 ended the day nearly on top of its 100-day moving average. Jim Paulsen, chief investment strategist at the Leuthold Group, said traders will be watching if the index holds this level or breaks lower. "With a light economic calendar this week, all eyes will be on key technical support levels, earnings reports and whether bond yields keep surging toward 2% or finally take a breather," said Paulsen.