Treasury Yields Continue To Rise as QE2 Ends

It’s been a tough week for Treasuries, with bond yields increasing for the last four days. And now with QE2 ending and one of the market’s biggest buyers, the Federal Reserve, getting out, it looks like that trend is going to continue.

The yield on the benchmark 10-year note rose to 3.17% Thursday, up nearly 0.3% this week, in part because investors have gained confidence in the bullish markets and cashed out to find riskier and potentially more rewarding investments. With the Fed cashing out, we should see the same result, only on a larger scale.

Of course, it’s important to keep in mind that just last Friday the yield on a 10-year note was at a seven-month low, so part of this week’s gains may simply be an overbought market correcting itself. Brian Edmonds, head of interest rates trading at Cantor Fitzgerald, predicts that the yield on a 10-year note will rise between 3.25% and 3.3% in the short term.

The decreasing demand for bonds was made apparent this week when the government held auctions for 2-year, 5-year, and 7-year bonds to tepid interest from investors. And demand is expected to remain weak.