10-Year Treasury Yield Surges

The Federal Open Market Committee issued a statement Wednesday saying that the latest economic data “suggests that economic activity has been expanding at a moderate pace.”

Further recent improvement was noted in the labor market, though unemployment remains elevated. Household spending and business fixed investment improved, and the housing sector has strengthened further.

“The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate,” the FOMC statement said. “The committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.”

While the statement indicated that the Fed will continue buying $85 billion a month in agency mortgage-backed securities and U.S. Treasury securities — Fed Chairman Ben Bernanke made comments at a press conference suggesting that the economy is improving and the bond-buying strategy could start winding down purchases later this year and be finished by the middle of 2014 as long as unemployment falls to 7 percent.

U.S. unemployment was 7.6 percent in May, according to the Department of Labor.

The Fed comments were followed by a big drop in the Dow Jones Industrial Average, which fell more than 200 points Wednesday.

The yield on the 10-year Treasury note leapt to 2.33 percent today from 2.20 percent on Tuesday, according to Treasury Department data.

The last time the 10-year yield was this high was on March 19, 2012, when the yield closed at 2.39 percent.

Based on the market’s latest movements, the 30-year mortgage is likely to be a little higher in Freddie Mac’s Primary Mortgage Market Survey tomorrow.