US Treasury yields surged on Wednesday, with the 10-year yield climbing above 5% and reaching its highest level since July 2007 as stronger-than-expected economic data, higher oil prices and weak demand at a five-year Treasury auction drove a broad bond selloff.
The 10-year Treasury yield rose to 5.135%, marking its biggest one-day move since April 7, 2025.
The yield accelerated after breaking through the key 5% level.
The two-year Treasury yield, which is more sensitive to expectations for Federal Reserve policy, rose to 4.947%, its highest level since May 2024.
The 30-year yield gained more than 10 basis points to 5.415%, reaching levels last seen in mid-2007.
Strong US economic data drives yields higher
The Treasury selloff intensified after S&P Global reported stronger-than-expected business activity in September.
The services purchasing managers’ index rose to 58.7 from 56.5 in August, reaching its highest level in nearly five years.
The manufacturing PMI climbed to 56.7, its highest level in more than four years.
S&P Global Market Intelligence chief business economist Chris Williamson said US business activity was experiencing a significant growth surge across both manufacturing and services.
Williamson also said input costs increased at their fastest pace in four years in September, with fuel and transport costs rising alongside higher oil prices.
The stronger data added to expectations that the Federal Reserve could keep monetary policy tighter for longer.
Traders increased their bets on another quarter-point rate increase in October, with the probability rising to 70% from 55% a day earlier, according to the CME Group’s FedWatch tool.
Barr comments and weak auction add pressure
Comments from Federal Reserve Governor Michael Barr added to the pressure on Treasury yields.
“In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” Barr said, while also stressing the importance of sustainable growth, maximum employment and price stability.
The bond selloff intensified after the Treasury Department’s $70 billion five-year note auction drew weaker demand than expected.
The notes were sold at a yield of 5.033%, above the 5.002% level expected before the auction and more than three basis points above that level.
Indirect bidders accounted for 54% of the sale, below the six-auction average of 65%.
Oil prices add to inflation concerns
Higher oil prices provided another source of pressure for Treasury markets. Brent crude rose more than 4% to above $103 a barrel, while US crude gained more than 2% to $92.55.
The rise in oil prices has added to concerns about persistent inflation as the US-Iran conflict continues.
Higher energy costs could make it more difficult for inflation to return to the Federal Reserve’s 2% target and increase expectations for additional rate hikes.
The move comes ahead of the Treasury Department’s expanded buyback programme, with a $6 billion operation targeting debt maturing in 20 to 30 years scheduled for Thursday.
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