The Federal Reserve announced a 1-point interest rate hike on September 16. The market is worried that the Fed will maintain a tighter monetary policy or even raise interest rates again. (Bloomberg)
[Financial Channel/Comprehensive Report] The U.S. 10-year Treasury bond yield rose sharply on Wednesday (23rd), with the largest single-day increase in the past 18 months, breaking through the key 5% level, and rising as high as 5.104%, a 19-year high since July 2007. Market analysts believe that strong U.S. economic data, hawkish signals from Federal Reserve officials, weak demand for 5-year Treasury bond auctions, and continued high oil prices have become the main reasons for pushing up U.S. bond yields.
"CNBC" reported that the U.S. 10-year Treasury bond yield surged more than 13 basis points to 5.104% on Wednesday, and the rise further accelerated after breaking through 5%. This was the largest single-day increase since April 7, 2025, when the 10-year yield rose by 16.6 basis points in a single day.
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U.S. Treasury yields of other maturities also rose simultaneously. The 2-year Treasury bond yield, which is most sensitive to expectations of the Federal Reserve's interest rate policy, rose more than 11 basis points to 4.889%, a new high since May 2024; the 30-year Treasury bond yield rose more than 9 basis points to 5.398%, the highest since June 2007.
The market was first hit by unexpectedly strong U.S. economic data. The services Purchasing Managers Index (PMI) released by S&P Global on Wednesday rose to 58.7 in September, the highest level in the past five years, higher than 56.5 in August; the manufacturing PMI also rose rapidly to 56.7, the highest level in more than four years.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said that U.S. business activity continues to flourish, and business activities in both the manufacturing and service industries have improved significantly recently. However, he also pointed out that input costs rose at the fastest rate in four years in September, and fuel and transportation costs increased significantly due to rising oil prices.
In addition to strong economic data, comments from Federal Reserve officials also further pushed up yields.
Federal Reserve Governor Michael Barr said further adjustments to monetary policy may still be needed to ensure inflation falls to target levels in a timely manner. He also pointed out that price stability is crucial to supporting sustainable and lasting economic growth and maximizing employment.
As a result, market expectations for the Federal Reserve to raise interest rates again have increased. According to the CME Group's FedWatch tool, the market's probability that the Federal Reserve will raise interest rates by 25 basis points in October rose to 66.4% on Wednesday, up from 55% the day before; the probability was less than 10% a month ago.
On the other hand, the results of the U.S. Treasury Department's 5-year Treasury note auction also reflected weak bond demand. According to data from the Bank of Montreal (BMO), the yield of this auction reached 5.033%, which is much higher than the average of 4.186% in the past six auctions; indirect bidders including global central banks undertook 54% of the bonds, which was also lower than the average level of 65%.
Peter Boockvar, chief investment officer of One Point BFG Wealth Partners, pointed out that the auction shows that the U.S. Treasury Department is trying to sell Treasury bonds in a weak market, but the yield rate is still not enough to attract buyers, and the bond bear market continues.
In addition, rising oil prices have also exacerbated market concerns about inflation. Brent crude oil futures rose 3.86% on Wednesday to close at $103.08 a barrel; U.S. crude oil futures rose 1.81% to close at $92.16 a barrel. As the U.S.-Iran war continues, oil prices have been rising this year, and the market is worried that rising energy prices will make it more difficult to cool down inflation, thus forcing the Federal Reserve to maintain a tighter monetary policy or even raise interest rates again.
Tony Miano, global investment strategist at Wells Fargo Investment Institute, said the market is pricing in "a return to a true tightening cycle." He pointed out that the Federal Reserve raised interest rates by 25 basis points last week to 3.75% to 4%, the first rate increase since 2023, and the dot plot shows that another rate increase may be possible this year.
U.S. bond yields continue to rise, which also means bond prices are under pressure. Since bond prices and yields move in opposite directions, an increase in yields represents a fall in existing bond prices; at the same time, the borrowing costs of the U.S. government and companies will also be affected.
Therefore, the market is currently paying attention to whether the U.S. economy continues to be strong, whether high oil prices will push up inflation, and whether the Federal Reserve needs to further raise interest rates. These factors will affect the subsequent trend of U.S. Treasury yields.
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