US Treasury yields hovered near levels not seen since 2007 on Tuesday, as the bond market extended its September selloff. The 10-year yield, a benchmark for mortgages, auto loans, and credit card rates, held steady at 5.2%, while the 30-year yield slipped 1 basis point to 5.5%. The 2-year yield, which reflects near-term Federal Reserve policy expectations, edged up 1 basis point to 4.9%.
Monday's session saw yields climb further, with the 10-year and 3-year notes each rising 5 basis points and the 2-year adding 6 basis points. The persistent upward pressure stems from a combination of elevated energy costs, AI-driven investment demand, and expectations that the Fed will keep rates higher for longer.
Worst month since 2022
The 10-year yield, which breached the 5% threshold earlier this month for the first time since 2023, is on track for its largest monthly gain since 2022, up roughly 50 basis points. The 2-year yield has surged nearly 60 basis points in September, poised for its steepest monthly jump since early 2023.
Bond market volatility, as measured by the ICE BofA MOVE index, has spiked almost 30% this month—the biggest increase since March, when the Iran war began and triggered an earlier energy shock. Data released last week showed the average rate on a 30-year US mortgage has climbed to its highest level in more than two years.
Global government bonds are moving in tandem. Two-year borrowing costs in France, Germany, Britain, and Australia are set for their sharpest monthly increases since March, while Japanese government bond yields remain near multi-decade highs. However, the US market faces the most acute pressure given the scale of Treasury issuance and its role as the world's benchmark risk-free rate.
Why yields keep climbing
The seven-month Iran war continues to weigh on energy prices, fueling expectations of further Fed rate hikes to contain inflation, which has been worsened by rising government debt. Traders are pricing in a more than 72% chance of another Fed rate hike at the October meeting, according to the CME FedWatch tool. This follows the Federal Open Market Committee's unanimous 12-0 vote earlier this month to raise its benchmark rate by 25 basis points to a range of 3.75% to 4%, its first hike since 2023.
Competition for capital is adding to the pressure on yields. Bond sales from hyperscale technology companies funding AI infrastructure have more than doubled this year to over $200 billion, according to LSEG data, competing directly with Treasuries and other government debt for investor demand.
What's next for markets
A cluster of US economic data this week will shape the near-term path for yields and the Fed's next move. The core PCE inflation index, the quarterly GDP print, and Friday's nonfarm payrolls and unemployment figures are all due before the October FOMC meeting. Any upside inflation surprise would likely push the odds of an October hike higher still, while a weaker jobs or growth reading could ease some of the pressure building in the bond market.
October brings further tests beyond the US calendar too, including French budget talks, a UK budget, and likely more bond issuance from technology firms funding AI buildouts. All of this could keep global yields elevated even if the domestic US data comes in mixed.
This article is for informational purposes only and does not constitute financial advice.
