The 10-year US Treasury yield rose to 4.97% during Asian trading on Friday, reaching its highest level since late 2023 and nearing the 5% threshold, as a global sell-off was fueled by oil prices rising above 100 dollars and growing bets on another US interest-rate hike.
Oil and interest rates intensify pressure
Brent crude futures jumped to 109.97 dollars a barrel during trading, their highest level in four months, and were on track for a weekly gain of about 13% as attacks on key shipping routes in the Middle East intensified and concerns grew over continued supply disruptions.
The CME Group’s FedWatch tool showed that traders were pricing in a 72% probability of a Federal Reserve rate hike next week, compared with 49% one week earlier. The yield on 2-year Treasuries, which is more sensitive to the path of interest rates, reached 4.596% on Friday, its highest level since July 2024.
Markets are awaiting US consumer price data due on Friday, after earlier data showed producer prices rose in August, reinforcing bets on an imminent rate hike. The European Central Bank raised interest rates on Thursday, warning that price pressures could persist for longer.
Markets are facing a combination of higher oil prices, mounting inflation fears, tighter central-bank policy and continued concern over fiscal deficits — factors that are combining to push global bond yields higher.
Mansoor Mohi-uddin added that strong US inflation data could push the 10-year Treasury yield above 5%.
Sell-off spreads to Asia and Europe
The sell-off pushed borrowing costs in developed markets from Tokyo and Sydney to New York and London to their highest levels in decades, as investors priced in the prospect of tighter monetary policy to counter price pressures linked to the war that has continued in the Middle East for more than six months.
In Australia, the 3-year government bond yield jumped 18 basis points to 5.047%, its highest level in 15 years. The 10-year Japanese government bond yield rose six basis points to 2.97%, amid widespread expectations that the Bank of Japan will raise interest rates next week to their highest level in 31 years.
In Europe, German government bond futures fell 0.22% to levels close to their lowest since 2011, while French bond futures dropped 0.3% to a record low, providing another indication that the sell-off is spreading across major debt markets.
5% threshold raises cost of funds
A sustained move above 5% represents a sensitive point for markets because sovereign bond yields serve as a benchmark for asset pricing and the cost of funds across the economy. Higher yields could make bonds more competitive with equities for investors’ money, potentially diverting some liquidity away from stock markets.
Higher yields feed through to the economy via rising mortgage rates and the cost of car and consumer loans, as well as higher borrowing costs for companies and local governments and increasing debt-servicing burdens on government budgets.
