Government Bond Yields Rise Across Major Markets

U.S. government-bond yields rose sharply through September 24. The Treasury’s daily measure put the 10-year yield at 5.18%, up from 4.96% on September 22, and the 30-year yield at 5.47%, up from 5.29%. Bond prices fell as yields rose. The move was part of a selloff across major markets, though the contribution of each potential cause remains uncertain.

Yields across markets

Reuters reported that the U.S. 10-year yield reached 5.196% during September 24 trading, its highest since 2007. The 30-year yield reached 5.4816%, its highest since 2004. Those intraday quotes differ from the Treasury’s daily measures because they capture market prices at different times.

Japan’s 10-year government-bond yield rose to 3.075% on September 24, its highest since August 1996, according to Reuters. Reuters also reported a widening gap between French and German 10-year yields. The simultaneous moves show that the pressure on bonds extended beyond the United States; they do not establish a single cause across those markets.

Growth, oil and rate expectations

S&P Global’s September 23 flash survey put its U.S. composite output index at 58.4, up from 56.0 in August. It also found the fastest increase in firms’ input costs in nearly four years, partly associated with fuel and transport. Stronger surveyed activity and rising costs gave investors fresh information to weigh when assessing inflation and interest rates.

Oil rose about 3% during the September 24 session before retreating from its highs, Reuters reported. Higher fuel prices can add to inflation concerns, but the reporting also identified stronger growth data, rate expectations, fiscal concerns, bond supply and investor positioning as possible contributors to the selloff. The available evidence does not establish how much of the yield increase came from any one factor.

The Federal Open Market Committee raised its policy-rate target by 0.25 percentage point to 3.75%–4.00% on September 16. Reuters reported that futures markets priced a 71% chance of another increase in October as of September 24. That figure describes traders’ expectations; the Federal Reserve had made no October decision.

Borrowing costs and uncertainty

Freddie Mac’s weekly survey put the U.S. 30-year fixed mortgage rate at 7.03% on September 24, compared with 6.95% the previous week. The survey covers applications through Wednesday, so it cannot measure the effect of Thursday’s bond trading. It also does not isolate the bond selloff’s contribution to the weekly increase.

If elevated sovereign yields persist, governments refinancing debt and borrowers whose financing is priced against those yields could face higher costs. Higher long-term rates could also make mortgages and capital-intensive investment more expensive. The September 24 move alone does not show whether those costs will stay elevated or how far market yields will pass through to new loans.

The next questions are whether oil prices and bond yields remain elevated, whether the Federal Reserve raises rates in October, and how much of the yield rise reflects inflation, policy-rate expectations, growth or government financing needs. The current market moves do not resolve those questions.