Bond yields jump as Geithner threat on China roils market

What's that about how people in glass houses shouldn't throw stones?

Interest rates on long-term Treasury bonds have jumped today, lifting the 10-year T-note yield to a six-week high, after Treasury secretary-designate Timothy Geithner accused China of "manipulating" its currency.

His comments raised the risk of a new U.S.-China row over trade, which in turn could dim China’s appetite for Treasury debt -- at a time when U.S. financing needs are skyrocketing as the Obama administration ramps up spending to bail out the economy.

The 10-year T-note yield was at 2.60% at about 11:10 a.m. PST, up from 2.52% on Wednesday and the highest since Dec. 11.

The 30-year T-bond yield jumped to 3.24% from 3.14% Wednesday.

In written testimony to the Senate as part of his confirmation hearings, Geithner said that "President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency. The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment."

China’s U.S. critics have long asserted that by keeping its currency undervalued, China keeps prices of its exports artificially low, at American manufacturers’ expense. . . .

"There’s concern on the China front," Kevin Flanagan, a fixed-income strategist for Morgan Stanley’s individual investor clients, told Bloomberg News. "Do they fire back and stop buying Treasuries, especially given the huge amount of supply we’re going to need to underwrite over the next few years?"

Treasury yields have rebounded this year from record lows in December. The 10-year T-note bottomed at 2.06% on Dec. 30.

Many market pros had expected some backup in yields just given the heavy calendar of bond offerings this quarter. The Treasury today said it will sell $40 billion in two-year notes and $30 billion in five-year notes next week.

Geithner just gave potential bond buyers something else to worry about.

Rising Treasury yields threaten to push up other interest rates as well, including on mortgages -- at a time when many Americans are desperate to refinance their home loans. The average 30-year mortgage rate nationwide rose to 5.12% this week from last week's record low of 4.96%, mortgage giant Freddie Mac reported today.

-- Tom Petruno

Photo: Timothy Geithner. Credit: Mandel Ngan / AFP/Getty Images

Comments

[G Span]

Good job sticking it to them - buy our dollar debt and then devalue the whole thing so they get half of what paid for back. Same thing as the FED printing more paper except the Chinese can blame themselves instead ...

Oh wait, are they really "intellectually challenged" so we can make it work here?

[Bo]

Great job Tim! Let's irritate the heck out of our bankers, and then ask for more loans. Was tact not one of your strong suits, Mr. Treasury Secretary?

[aprilmay]

About China, LA Times has been very critical and cynical so far. Why not add some more criticisms now?

[Tom Petruno]

@aprilmay: Can you be more specific?

Tom Petruno

[drew]

We Americans are 100% behind Obama and its crisis handling team in this. If that means starting a trade war, then be it. Instead of deteriorating in slow paces, I prefer total eoconomic collapse now. Yes, the financial system will be toast and people will suffer, but we have gone through WWII and came out the winner. The worst cases: 90% banks are gone, 50% people out of jobs, stock market valuation approaching 0. But things will improve eventually. A phoenix will rise out of the ruins. Let's get to the bottom of this in a timely fashion and things can only improve.