The yield on the 10-year U.S. Treasury note jumped 10.57 basis points to 5.081%, its highest level since 2007, after September data showed accelerating business activity and strengthened expectations that the Federal Reserve would continue raising interest rates, putting pressure on U.S. stocks.
Business activity strengthens bets on tighter monetary policy
Data from S&P Global showed the U.S. composite purchasing managers' index rising to 58.4 points in September, from 56 points in August, its highest level since July 2021.
The acceleration was driven by a jump in new orders, with the services sector continuing to lead growth and manufacturing output accelerating, while factory employment rose at its fastest pace since February 2021.
The data prompted investors to increase their bets on additional monetary tightening, pushing the probability of a rate hike in October to about 73%, compared with 53% earlier.
The 10-year Treasury yield touched about 5.054% during trading, while the two-year yield rose 8.5 basis points to 4.862%, its highest level since June 2024, and the 30-year yield reached 5.37%.
Federal Reserve Governor Michael Barr said the central bank took an important step last week to recalibrate short-term borrowing costs in an effort to lower inflation, adding that further interest-rate increases would likely be needed.
The Federal Reserve had raised its interest rate by 25 basis points earlier in September, as inflation remained above its 2% target.
Stocks fall as oil rises
U.S. stock indexes declined under pressure from higher yields, with the Dow Jones down 0.18%, the S&P 500 falling 0.53% and the Nasdaq losing 1.05%.
In Europe, the STOXX 600 fell about 0.27%, while the MSCI world equity index declined 0.51% after four consecutive sessions of gains.
Rising bond yields increase borrowing costs for households and companies and raise the return investors demand for holding riskier assets, putting pressure on stock valuations.
The rise in yields coincided with higher oil prices as markets awaited developments in the war with Iran and possible talks to end it, as well as an anticipated summit in Washington between U.S. President Donald Trump and Chinese President Xi Jinping.
U.S. crude rose 1.49% to $91.87 a barrel, while Brent crude gained 2.39% to $101.62 a barrel. Prices had declined earlier in the week amid increased Gulf supplies and hopes for diplomatic moves to halt the war, before rising again as uncertainty persisted.
Dollar rises as gold retreats
Expectations of continued rate hikes supported the U.S. currency against a number of major currencies. The euro fell 0.5% to $1.1389, its lowest level since late July, while the dollar rose 0.56% against the yen to 158.25 yen.
Spot gold fell 1.55% to $4287.05 an ounce, pressured by the stronger dollar and higher Treasury yields.
