WASHINGTON (AP) — The bond market is betting on a stronger U.S. economy.
Prices for U.S. Treasury debt plunged for the fifth straight trading session Wednesday, and the yield on the benchmark 10-year note spiked to its highest level since October.
Money poured out of bonds and into stocks after rosy words on Tuesday from the Federal Reserve gave traders confidence that the economic recovery is strengthening. Major stock market averages are at or near four-year highs.
Treasury yields — and interest rates that take their cues from Treasury yields, including mortgage rates — remain near all-time lows. So while mortgage rates may creep up, they should remain historically low.
Even with the economy getting stronger, the Fed plans to keep short-term interest rates near zero through 2014. And demand is strong for long-term Treasurys because the dollar and the U.S. government still look like safer bets than the euro and other nations.
More evidence of the hunger for U.S. debt came Wednesday afternoon, when the Treasury Department auctioned $13 billion in 30-year bonds. Bids came in higher than current market prices.
The bonds were priced to yield 3.38 percent. Similar bonds trading on the open market fetched a yield of 3.41 percent.
The yield on the 10-year Treasury note was 2.27 percent as of 4 p.m. EDT (2000 GMT) on Wednesday. It hasn't closed above that level since Oct. 28, but the yield is far lower than the 3.36 percent level where it settled a year earlier.
Prices rose and yields fell for U.S. government debt almost all last year. Investors were willing to pay for the safety of U.S. debt because other investments, like volatile stocks and the euro, seemed much riskier at the time than they are today.
In the bond market, traders have been selling bonds mainly because the Fed's view of the economy has improved markedly. The Fed said in a policy statement Tuesday that it saw signs of strength in hiring and spending by consumers and businesses. It appears less likely that the European debt crisis will cause financial upheaval here, the Fed said.