U.S. Treasury yields extended their gains early Thursday after the 10-year benchmark touched a 19-year high the previous session. The surge comes in the wake of robust U.S. economic activity data that has intensified market speculation regarding additional Federal Reserve interest rate increases.
The 10-year Treasury yield rose one basis point to 5.124%, following Wednesday’s jump of more than 13 basis points to reach 5.104%. The 30-year Treasury bond climbed over one basis point to 5.42%, marking its highest level since 2004. Meanwhile, the 2-year Treasury note yield remained largely flat at 4.895%.
The sell-off in American debt is part of a broader global trend in government bonds. Japan’s 10-year JGB yield rose 8 basis points to 3.055%, a level not seen since August 1996. Similarly, yields on U.K. Gilts and German Bunds moved higher.
Several catalysts drove the Treasury selloff, including better-than-expected economic activity, hawkish remarks from Federal Reserve officials, and elevated oil prices. Wednesday’s S&P Global purchasing managers’ index (PMI) data revealed that the services sector PMI climbed to 58.7 in September, the highest reading in nearly five years. The manufacturing PMI also rose to 56.7, a level unseen in over four years.
These figures have significantly shifted market expectations. According to the CME Group’s FedWatch tool, traders are now pricing in a 70% chance that the Federal Open Market Committee will raise rates at its October meeting.
Fed Governor Michael Barr indicated on Wednesday that “further policy adjustments” are likely necessary to bring inflation back to target. Deutsche Bank analysts noted that the combination of resilient growth and rebounding oil prices has fueled speculation about faster rate hikes.
In energy markets, Brent crude futures dipped 0.54% to $103.66 a barrel, while U.S. West Texas Intermediate futures for November fell 0.6% to $92.68 per barrel.
Investors are now looking ahead to Thursday’s economic releases, including weekly jobless claims and new home sales data for August, for further signals on the economy’s trajectory.
It’s not just the US. Japan and Germany are feeling the pain too. This selloff is truly global.
So borrowing for a mortgage is getting brutal. Great for savers, terrible for anyone trying to buy a home now.
Fed hikes again? With oil this high, haven’t they already broken something? Inflation is clearly not cooperating.
2004? I still remember when 5% was considered sky-high. The economic landscape has completely shifted since then.