- The 10-year U.S. Treasury yield hit 3% on Monday, for the first time since late 2018.
- The 10-year German bund climbed 4 basis points on Tuesday morning, hitting 1% for the first time since 2015, according to Reuters.
The 10-year U.S. Treasury yield retreated below the 3% mark on Tuesday morning, while the 10-year German bund hit 1% for the first time since 2015, amid expectations around interest rate hikes.
The yield on the benchmark U.S. 10-year Treasury note fell more than 1 basis point to 2.983% in afternoon trading. The yield on the 30-year Treasury bond fell nearly 4 basis points 3.023%. Yields move inversely to prices and 1 basis point is equal to 0.01%.
The 10-year U.S. Treasury yield hit 3% on Monday, for the first time since late 2018.
The milestone comes as investor expectations grow that the Federal Reserve will hike interest rates by 50 basis points this week. Interest rates have spiked in recent months as the central bank signaled it would be increasingly aggressive in fighting inflation.
"Twenty, thirty years ago, the idea was that Fed hikes would translate into actual economic changes. Today, it's the expectation of Fed rate hikes that move interest rates and translate into actual economic changes," said Guy LeBas, chief fixed income strategist at Janney.
The Federal Open Market Committee is due to kick off its two-day policy meeting on Tuesday, with a statement on its decision on interest rates slated for release at 2 p.m. ET on Wednesday. Fed Chairman Jerome Powell is expected to hold a press conference at 2:30 p.m. ET that afternoon.
Investors will be looking for further guidance on additional rate hikes and the Fed's plan to reduce its balance sheet.
"The thing that is challenging for the bond market is that Jay Powell has been trying to buy optionality. Basically been trying to buy the potential raise rates even faster," LeBas said. "And at a pace of 50-basis-point hikes per Fed meeting, he's bought a lot of what he can realistically buy."
Meanwhile, growing expectations that the European Central Bank will also soon raise interest rates was reflected in movements in the German bond market. The 10-year German sovereign bund climbed 4 basis points on Tuesday morning, hitting 1% for the first time since 2015, according to Reuters data, before pulling back later in the day.
Central banks are looking to hike interest rates as part of a normalization of monetary policy, pulling back the economic support provided in the Covid-19 pandemic. Surging inflation, driven higher by the Russia-Ukraine war, has seen the Fed in particular look to accelerate its rate-hiking cycle in a bid to temper rising prices.
The battle to control inflation comes amid concerns that this could actually drag on economic growth.
Ed Smith, co-chief investment officer at Rathbone Investment Management, told CNBC's "Street Signs Europe" on Tuesday that his firm's base case was that the U.S. economy could avoid recession.
He added that Rathbone Investment Management therefore believed there was "still a little more upside for yields on the 10-year Treasury and across the longer end of the curve, particularly given all the ongoing uncertainty around inflation."
In terms of other economic data, the March job openings data showed a record 11.5 million openings. March's factory orders data showed a better-than-expected rise of 2.2%.
Regarding the Russia-Ukraine war, U.S. intelligence indicates that Russia is planning to hold sham referenda in mid-May in a bid annex Donetsk and Luhansk, the two regions of eastern Ukraine currently under Russian occupation.
— CNBC's Holly Ellyatt contributed to this market report.