The yield on the 30-year US Treasury bond jumped more than 3 basis points to 5.444%, marking its highest since 2004.The 10-year US Treasury yield, the benchmark of the $29-trillion Treasury market that anchors pricing for virtually all financial assets globally, touched a new post-financial-crisis high of 5.145%. The two-year bond yield, which moves in tandem with Fed rate announcement expectations, meanwhile rose above 4.9%.
Bond yields have been soaring for months as the raging US-Iran conflict sparked a skyrocketing rally in oil prices, while growth proved resilient and investors have fretted about high levels of government debt. Notably, bond prices move inversely to bond yields, so rising yields reflect falling bond prices.
The S&P Global services PMI rose to 58.7 in September from 56.5 in August, marking its highest reading in nearly five years. The manufacturing PMI also climbed to 56.7, reaching its strongest level in more than four years.
This strengthened expectations of the US Federal Reserve hiking its interest rates in the near term. Fed funds futures traders are now pricing in a 66% chance of an October rate hike, up from 53% earlier in the day. A month earlier, the odds were below 10%.
The bond selloff was not limited to the US. Japan’s 10-year bond yield jumped to highest since August 1996. Indian government bonds also soared sharply.
Also read | India bonds pummelled after Treasury rout, traders raise rate hike bets
What lies ahead?
Strong PMI data and a weak US government bond sale had compounded Wednesday’s global rout, and all the ingredients are now in place for a rise in long-term interest rates, said AXA’s Chief Economist Gilles Moec, as quoted by Reuters.
The analyst noted that inflation is high, central bankers are giving hawkish messages, there is competition from the funding needs of the tech sector and there are no reassuring signs on the US debt trajectory. “They are all fairly big macro issues and on top of that you have the binary geopolitical issue of what is happening in the Middle East,” Moec further said.
There is definitely angst in the bond market and there are no two ways about it, the report quoted Pictet Asset Management strategist Arun Sai. “We are going through a period where the steady state equilibrium has been challenged in a number of ways, and it’s competing narratives, and it’s not yet obvious which of these is right,” he added.
Also read | Why did market crash today?
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