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Bond Market Selloff Signals Higher Rates Ahead
CNBC.com | March 14, 2012 | 03:18 PM EDT

The selling wave that hit the Treasury market this week reflects an improving view of the U.S. economy and could be the start of a period of slightly higher interest rates.

The yield curve Wednesday was at its steepest since October, and even a 30-year bond auction failed to stop the selling. Rates, which move opposite to prices, rose to their highs of the day, after the $13 billion auction at 1 p.m.

“I think this has really spooked people now. The auction didn’t go that well, and rates are at the upper end of the (day's) range. We broke through some key psychological levels — 2.25 on the 10-year,” said George Goncalves, Treasury strategist at Nomura Americas.

The 30-year yieldtouched 3.425 percent mid-afternoon and the 10-year was yielding 2.279 percent, both levels last seen in late October. The 10-year yield is closely watched since it affects a whole range of consumer lending rates.

“It’s a good thing because rates are rising for cyclical reasons, meaning increasing demand for capital and an improving economy,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank . “Certainly corporations want to borrow a lot of debt. We’ve been seeing that. This is healthy, I think, and rates would have to go up significantly for the economy to suffer.”

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