U.S. 10-year Treasury yields, at around 4.74%, are trading at levels that in the past have attracted the attention of U.S. officials, with 5% now in focus.
"This will be very important, not just for bond markets, but also other financial assets as any break higher is likely to undermine confidence," said Zurich Insurance Group's chief market strategist Guy Miller.
"Given the importance of this level, we are likely to see it defended by the U.S. Treasury."
Some analysts reckon the Treasury's unusual decision to sell euros and not dollars in recent joint intervention with Japan to bolster a weak yen suggests it does not want bond market strains worsened by foreign central banks selling Treasuries to fund currency-support operations.
Foreign holdings of U.S. Treasuries slid in June, Treasury Department data showed on Monday, led by declines in the holdings of Japan -- the biggest foreign holder of U.S. bonds -- the UK and China.
Two recent Treasury auctions also drew attention for their yields as the sale of 10-year notes cleared at a yield of 4.683%, the highest in 19 years, while the 30-year bond auction stopped at 5.216%, a 25-year peak.
Rising tariff refunds have meanwhile put U.S. public finances under further strain, after the Supreme Court struck down the emergency tariffs imposed by President Donald Trump last year.
Rising bond yields in Japan, where 30-year borrowing costs are just above 4%, are also starting to draw in Japanese investors, traditionally big buyers of U.S. debt, creating another headwind for the U.S. bond market.
Charu Chanana, chief investment strategist at Saxo Bank in Singapore, said Japanese bond yields were at much more competitive levels, and she noted the fall in Japan's U.S. bond holdings in June.
"That doesn't mean Japan is abandoning Treasuries, but it does mean Washington can no longer assume that foreign demand will absorb additional supply at yesterday's yields."
For some bond investors, rising yields were making the market attractive.
TLT•
