US Treasury yields hit two-decade highs for a seventh straight session on Thursday, capping the bond market's worst quarter since 1994. The 10-year yield touched 5.31% before a drop in oil prices steadied the market, while traders now expect three more Fed hikes before mid-2027.
US yields climbed to their highest levels in twenty years for a seventh consecutive session on Thursday before a drop in oil prices steadied a bond market reeling from its worst quarter this century, Reuters reported. Investors are bracing for higher interest rates.
Worst quarterly rise since 1994
The benchmark US 10-year Treasury racked up an 87.1 basis point rise in yield over the September quarter, the sharpest quarterly rise since 1994, according to LSEG data. The 10-year yield touched 5.31% on Thursday, the highest level since 2007, before steadying just below 5.28%. The 30-year Treasury yield topped 5.65%, its highest since 2002.
Yields rise when bond prices fall, and the move has not stayed confined to the US. In Japan, where inflation is finally taking hold after a decades-long battle with deflation, sovereign yields notched an unprecedented fifth consecutive quarter of double-digit gains. European bond futures and cash bond markets in Australia, South Korea and Japan traded under pressure on Thursday.
Energy costs and AI spending drive the selloff
Soaring energy costs fan inflation worldwide, and the boom in AI and data centre building lifts expectations for growth and for where short-term rates will settle, driving yields higher across markets. Higher rates matter because they raise financing costs for companies and mortgage borrowers, and leave governments spending more on interest payments, with less left over for social programmes.
Traders have scrambled to reverse expectations for US interest rate cuts this year. After a hike last month, they now expect at least three more Federal Reserve hikes before the middle of 2027.
"The bear market that had to happen"
According to Reuters: "It was the Treasury bear market that had to happen", said Andrew Lilley, chief rates strategist at Barrenjoey, an investment bank based in Sydney. He said the market had been persisting in an unstable equilibrium where core inflation was unsustainably high while the Federal Reserve had done nothing about it.
Lilley said he believes the end of the selloff is in sight, but added that the resilience in other markets could come under pressure from the higher returns now available in bonds.
Source: Investing.com
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