US Treasury yields climbed to multi-decade highs on Thursday, extending their rise for a seventh consecutive session. However, a decline in oil prices later helped stabilize a bond market that had just suffered its worst quarter this century.
Investors remain focused on the prospect of higher interest rates, which has continued to pressure government bonds around the world.
US Treasury Yields Surge to Multi-Year Highs
The benchmark 10-year US Treasury yield rose by 87.1 basis points during the September quarter, according to LSEG data. That marked its biggest quarterly increase since 1994.
The 10-year yield briefly climbed to 5.31% on Thursday, its highest level since 2007, before easing slightly to trade just below 5.28%.
Meanwhile, the 30-year US Treasury yield moved above 5.65%, reaching its highest level since 2002.
Because bond prices and yields move in opposite directions, the sharp increase in yields reflects heavy selling pressure across the Treasury market.
Global Bond Markets Face Similar Pressure
The selloff has not been limited to the United States.
In Japan, government bond yields recorded a fifth consecutive quarter of double-digit increases. This came as inflation continued to strengthen after decades of persistent deflation.
European bond futures also weakened, while government bonds in Australia, South Korea and Japan traded under pressure.
Inflation and AI Investment Push Yields Higher
Several factors have contributed to the global rise in bond yields.
Higher energy prices have raised concerns that inflation could remain elevated for longer. At the same time, strong investment in artificial intelligence and data centres has improved expectations for economic growth.
These trends have also increased expectations that central banks may need to keep short-term interest rates higher for longer.
Higher Rates Raise Borrowing Costs
Rising bond yields have significant consequences for the broader economy.
Higher interest rates increase financing costs for companies and make mortgages more expensive for households. Governments also face larger interest payments on their debt.
As a result, more public spending may need to be directed toward debt servicing, potentially leaving less available for other programmes.
Markets Reprice Federal Reserve Expectations
Traders have rapidly changed their expectations for US monetary policy.
After the latest rate increase, markets have moved away from earlier expectations for near-term rate cuts. Investors are now pricing in the possibility of several additional Federal Reserve rate increases before the middle of 2027.
This sharp change in expectations has been one of the main drivers behind the latest Treasury selloff.
Is the Treasury Selloff Nearing an End?
Andrew Lilley, chief rates strategist at Sydney-based investment bank Barrenjoey, described the move as a Treasury bear market that had become increasingly difficult to avoid.
He argued that persistent core inflation and delayed monetary tightening had created an unstable environment for bond markets.
Lilley also suggested that the worst of the selloff may be approaching its end. However, he warned that higher bond returns could begin to place additional pressure on other asset classes.
For now, global bond markets remain highly sensitive to inflation, energy prices and expectations for future central bank policy.
