The U.S. 10-year Treasury yield held near its highest level since July 2007 at 5.230% on Wednesday. Benchmark yields were on track for a nearly 50 basis-point September gain — the biggest single-month jump in almost two years — as heavy debt issuance and persistent energy inflation drove the sell-off, with money markets pricing a near 70% chance of an October Fed rate hike.
Global bond sell-off deepens into month-end
Global sovereign bond markets stayed under pressure Wednesday as benchmark yields hovered near multi-year peaks heading into the close of a punishing month. The yield on the benchmark U.S. 10-year Treasury note held near its highest level since July 2007 at 5.230%. Benchmark 10-year yields were set for a rise of nearly 50 basis points for September — the largest single-month surge in almost two years. Relentless debt issuance and persistent energy inflation battered duration paper through the month.
Short-end yields lead the sell-off
Selling pressure was sharpest at the policy-sensitive short end of global debt curves, where traders have rapidly priced in higher terminal rates from major central banks. The U.S. two-year Treasury yield touched its highest level since 2024 in the previous session near 4.96%, tracking a monthly surge of more than 50 basis points as markets bet on another Federal Reserve rate increase in October.
European debt markets saw similar damage. German and French benchmark yields rose to their highest levels in 17 and 18 years, respectively, before consolidating in early Wednesday trading. In Asia, Japanese 10-year government bond yields held firm, but benchmark borrowing costs rose by more than 40 basis points over the quarter as markets continue to test the Bank of Japan's yield curve parameters.
PCE data looms over rate-hike bets
The broader sell-off continues to be fueled by persistent energy cost pressures, with crude oil remaining elevated, and a barrage of hawkish central bank commentary warning that official interest rates will need to stay higher for longer. Trading desks are keeping cash buffers elevated ahead of the U.S. August Personal Consumption Expenditures price index, due later in the session.
With money markets already pricing a near 70% chance of a quarter-point Fed rate hike next month, an upside surprise in the PCE reading threatens to trigger another round of forced liquidations across long-dated government paper.
Source: Investing.com
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