A fresh wave of selling swept through government bond markets on both sides of the Atlantic on Tuesday, sending 10-year bond yields to fresh highs of the year.

A U.S. labor-market report showed job openings in April hit a record high, adding to optimism over the growth outlook and sapping demand for bonds. New government debt sales from both the public and private sector also hurt bond prices.

The selling sent the yield on the benchmark 10-year Treasury note to the highest level in eight months. The yield on the 10-year German government bond rose to the highest since September and the yield on the 10-year U.K. government bond increased to the highest since November. Bond yields rise as their prices fall.

The latest leg of the selloff deepened the bond market’s rout since late April. Demand for haven bonds has declined after a strong run-up in bond prices since the start of 2014.

Investors have been shedding bond holdings as the economic growth outlook brightened in the U.S. and the eurozone, deflation fears have pulled back and the Federal Reserve is getting closer to raising short-term interest rates for the first time since 2006.

“Things are not as dire as people had thought a few months ago,” said Gary Pzegeo, head of fixed income at Atlantic Trust with $27 billion under management at the end of March 2015. “Investors are adjusting to a different growth and inflation outlook.”

The yield on the 10-year Treasury note was 2.417%, the highest closing level since Oct. 6, compared with 2.382% on Monday. The yield has jumped half of a percentage point since April 20. It was 2.173% at the end of last year.

David Fuller's view

Here is a PDF of The Wall Street Journal article.

Today’s rise in bond yields provides further evidence that the secular bull market of approximately 35 years for the fixed interest sector is over.  The Merrill Lynch Treasury 10-Yr Total Return Index now shows a lower high and a lower low, suggesting that a downward move at least equal to the 2013 setback is underway.  Note: this Index lags by a couple of days and is only updated through last Friday, when the US 10-year yield was at 2.258% compared to 2.438% today.

When the Merrill Lynch Treasury 10-Yr Total Return Index above clearly falls further than the similar-sized setbacks commencing in 2013, 2010 and yearend 2008, as I suspect it will in coming months, we are likely to see at least a whiff of panic as more people sell to limit profit erosion.

This will also unsettle stock markets, as we are already seeing.  However, equities with reasonable yields should outperform long-term government bonds over the lengthy medium to longer term.