LONDON/NEW YORK – US long-dated Treasury yields rose to their highest in more than 20 years on Sept 24, extending a global selloff that has accelerated on worries that high energy costs, resilient economic growth and increased government spending will keep inflation elevated.
Bond markets worldwide have been under pressure for months, sending yields to multi-decade highs as the Iran war raised energy prices and as investors fret about government spending. Rising yields mean bond prices are falling.
Investor concern has risen of late as the selloff in the US, the world’s deepest and most influential government bond market, has picked up pace. The yield on 30-year Treasury bonds climbed to 5.48 per cent, highest since 2004, on Sept 24, while the benchmark US 10-year yield reached 5.20 per cent.
So far, investors have absorbed the rise in yields given the resilience of underlying economic growth, booming corporate profits and an avalanche of spending, led by the AI boom. The tech-heavy Nasdaq closed at a record high on Sept 22.
But this month’s breach of 5 per cent on the 10-year Treasury yield, a level reached only fleetingly in recent decades, has investors eyeing 6 per cent as the next potential pain threshold, which could rattle financial markets and Corporate America.
At these levels, borrowing costs may start to squeeze consumers. US 30-year mortgage rates are now a percentage point higher than before the war and, at 7 per cent, around their highest in two years.
The 10-year yield has risen 0.70 percentage point since the Federal Reserve policy meeting in June and 1.25 percentage points since early March.
“The vast majority of the move higher in yields since March has been driven by rising Fed expectations, with the remainder driven by a combination of rising growth expectations and higher oil prices,” said Gennadiy Goldberg, head of US rates strategy at TD Securities, in a research note.
Recent business activity data pointing to strong US growth and rising inflation pressures has raised the chances the Federal Reserve will hike rates further.
While shorter-dated Treasury yields track expectations for interest rates, the 30-year yield reflects investors’ willingness to finance government borrowing in the years ahead.
“You’re seeing a repricing of several things – US economic growth has remained resilient, and that’s a more positive reason why you would find yourself in a higher risk-free rate environment,” said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte, North Carolina.
World yields also on the rise
The world’s biggest economies are grappling with higher interest payments as spending demands surge. Germany’s finance agency said on Thursday it expects federal borrowing to hit a record €525.5 billion (S$765 billion) in 2026 and to rise further next year, driven largely by rising refinancing needs and growing requirements for special funds.
The yield on Germany’s benchmark 10-year Bund briefly rose above 3.6 per cent this month, its highest level in 17 years.
Japan’s 10-year bond yield on Sept 24 hit its highest since 1996.
With nominal US growth running at around 8 per cent in the second quarter and showing no signs of slowing materially, investors have remained sanguine.
US Treasury Secretary Scott Bessent has taken extraordinary measures to try to contain rising borrowing costs, including intervening to buy the yen to avoid officials in Tokyo selling Treasuries to do so, or expanding buybacks of 20- and 30-year debt, but to little avail, as yields have continued to climb.
The US already boasts some of the highest yields among the Group of Seven richest nations.
New York Federal Reserve President John Williams said on Sept 24 the US economy was displaying “remarkable resilience”.
“Treasuries are competing with the rest of the market to be purchased and so you know, the question is, how much higher could it go?“ Hank Calenti, global markets strategist at SMBC EMEA, said. REUTERS
