Treasury yields surged on the first trading day of 2022 in a flush of economic optimism that lifted U.S. stocks, drew a raft of corporate bond sales and reinforced expectations for at least three Federal Reserve rate hikes this year.

Benchmark yields climbed across the curve, led by the 10-year, rising as much as 11 basis points and exceeding 1.60% for the first time since the omicron variant emerged in late November. The yield on the 30-year bond increased nearly 11 basis points to top 2.0%, while the two-year rate surpassed 0.80%, its highest level since March 2020.

This week is replete with key economic events—led by the December employment report and the release of the minutes of the Fed’s last meeting—with the potential to build a case for rate hikes starting sooner than May, the current expectation.  A bulging calendar of corporate debt sales may also be weighing on Treasuries as investors raise cash to buy credit.

“March will be a live meeting and stronger data this week means it is not inconceivable we see lift off that early,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities. “The move higher in rates is not surprising as the market expects the Fed will lift off this year.”

Based on current interest-rate futures prices, the first increase in the fed funds target is estimated for May, with 77 basis points of tightening expected by the end of the year. Strategists surveyed by Bloomberg expect Treasury yields will end 2022 at higher levels, with the two-year climbing to 1.12% and 10-year notes reaching 2.04%.

That outlook raises the prospect of negative Treasury returns for two consecutive years, a performance that would be unprecedented since records began in 1974. The Bloomberg Treasury index provided a total return of minus 2.3% in 2021, its first slump in nominal terms since 2013.  The index has in the past rebounded after a down year, with gains ranging between 5.1% and 18% after negative returns in 1994, 1999, 2009 and 2013.

In the corporate debt corner of the market, January is usually a busy month for high grade sales. A supply of $40 billion is expected this week, with eight companies looking to borrow in the investment-grade market on Monday, according to debt underwriters.

—With assistance from Michael Gambale.

This article was provided by Bloomberg News.