The 30-year US Treasury yield climbed to 5.53% on Friday, marking its highest level since 2004 and representing the biggest one-day increase since April 9, 2025, which coincided with Trump's tariff announcements. According to CNBC TV18, the benchmark 10-year Treasury yield reached a fresh multiyear high exceeding 5.22%, with the 30-year yield just over 5.50% on Friday afternoon in New York, about three basis points higher on the day. The yield was below 5% as recently as early July, highlighting the dramatic acceleration in rate expectations. The surge came as fresh services and manufacturing data showed US business activity racing to a more-than-five-year high in September, with the S&P Global services PMI rising to 58.7 from 56.5 in August, marking its highest reading in nearly five years. The manufacturing PMI also climbed to 56.7, reaching its strongest level in more than four years. As per The Financial Express, the average 30-year fixed mortgage rate rose to 7.26% on Wednesday, marking the highest reading since January 13, 2025, and the peak so far under US President Donald Trump's second term. The 10-year yield surge was the largest since April 9, 2025, which was a week after Trump's tariffs began disrupting global markets. As per NBC News, Fed funds futures traders are now pricing in a 73% chance of an October rate hike, up from 53% earlier in the week and 10% a month earlier. Fed Governor Michael Barr signaled that further rate hikes will likely be needed, stating the central bank took an important step last week to "recalibrate" short-term borrowing costs to bring down inflation. Gennadiy Goldberg, head of US rates strategy at TD Securities, noted that "the move higher in Treasury yields has likely been driven by a combination of rising Fed hike expectations, higher growth expectations, higher oil prices, fiscal concerns, and hyperscaler issuance."
The consumer sentiment gauge released Friday by the University of Michigan, despite falling to a four-month low in September, held up better than economists anticipated, according to CNBC TV18. This resilience in consumer confidence comes despite the dramatic rise in Treasury yields and broader market volatility. The University of Michigan's consumer sentiment index fell to a four-month low in September, but the decline was not as severe as economists had feared, providing some support for the market's ability to absorb higher interest rates. The University of Michigan's consumer sentiment index fell to a four-month low in September, but the decline was not as severe as economists had feared, providing some support for the market's ability to absorb higher interest rates. This resilience in consumer confidence is particularly notable given the current environment of rising rates and economic uncertainty, suggesting that consumers may be adapting to the new interest rate environment more effectively than initially anticipated. As per NDTV, the consumer sentiment gauge released Friday by the University of Michigan, despite falling to a four-month low in September held up better than economists anticipated, with the University of Michigan's consumer sentiment index falling to a four-month low in September but showing more resilience than anticipated by economists.
Japan's 30-year bond yield climbed to a record 4.223% on Friday, marking the highest level since Tokyo first sold the maturity in 1999. According to Reuters, the 10-year yield reached 3.055% on Thursday, its highest point since August 1996. The surge is being driven by multiple factors including monetary policy changes and fiscal pressures. The Bank of Japan (BOJ) raised rates to 1.25% on September 18, the highest level since 1995, with the board splitting 7-2, yet the central bank signaled that further hikes remain on the table. Government ministries requested a record ¥143.1 trillion for fiscal 2027, with debt servicing alone accounting for ¥36.64 trillion. The Finance Ministry raised its assumed borrowing rate to 3.8% from 3%. The US 10-year Treasury yield broke 5% on September 15 during a global bond sell-off, with the Federal Reserve then lifting its target range to between 3.75% and 4%. However, the yen has not benefited from the higher bond yields, with the currency sliding toward 158 per dollar after the BOJ decision. As per Sumitomo Mitsui Trust Asset Management's Katsutoshi Inadome, "Japanese bond yields are facing upward pressure as inflation concerns grew on a weaker yen."
US benchmark West Texas Intermediate crude futures settled down 2.3% at $92.41 on Friday, according to CNBC TV18, marking a significant drop from earlier levels and creating an unusual divergence with Treasury yields. Friday's increase in long-term yields was at odds with the drop in oil prices, which have been a dominant driver of daily changes in Treasury yields during the war-related supply shock. Global crude oil prices had climbed about 3% to a one-week high amid US-Iran uncertainties, with prices hitting $108 per barrel once again after a Houthi missile attack on Saudi Arabia revived fears of supply disruptions. However, trade was volatile and prices came off session highs after reports the US and Iran discussed reopening the Strait of Hormuz. The return of oil above $100 has strengthened expectations that the Fed may have to raise rates further to contain inflation, adding to the pressure on bond markets. Iran's top negotiator has mocked the US after 10-year Treasury yields crossed 5%, warning that borrowing costs could return to levels last seen in the 1970s. In a post on X, MB Ghalibaf wrote: "Happy 5.1% 10Y America 🎉. Mashallah. Celebrate: it's the floor two years out." He also took aim at US policy toward Iran, saying Washington wanted to drag the country back to 1970s levels, stating "We'll return you to 1970s rates, plus high gas prices, diesel shortages and bell-bottoms. Enjoy the nostalgia!"
Markets are now pricing a greater chance of another Fed rate increase as soon as next month, with Fed funds futures indicating about a 73% probability of a hike, up from roughly 53% earlier in the week, according to Reuters. The Fed raised interest rates last week for the first time in more than three years, and the prospect of additional tightening has begun to influence other central banks as well. The Times of India reports that Norway's central bank raised rates on Thursday, while Sweden's central bank signalled that a hike could follow by year-end. The Treasury market is also absorbing increased government borrowing needs and uncertainty over inflation and fiscal policy. At Thursday's seven-year Treasury auction, the US sold $44 billion of notes at a high yield of 5.085%, the highest for a seven-year auction since 1993. The pressure on longer-dated bonds has important implications for households and investors because Treasury yields influence borrowing costs across the economy. US mortgage rates have moved towards 7%, adding to pressure on the housing market. Citigroup economist Andrew Hollenhorst noted that "with rate hikes now being delivered in direct response to higher energy prices, there is no clear near-term upper bound on hikes that can be priced in by the market." Interest-rate strategists at Morgan Stanley increased their Treasury yield forecasts based on the firm's recently revised forecast for additional Fed tightening, noting that market pricing of the Fed's path explains most of the movement in 10-year yields.
Despite the bond selloff, Asian equities remained relatively resilient on Friday. According to The Times of India, Japan's Nikkei rose about 1.3%, while Hong Kong's Hang Seng fell 1.4% and Australia's resources-heavy shares declined 0.4%. US stock futures were modestly higher, suggesting markets are beginning to reassess the impact of rising rates. The dollar was also on track for a gain of about 1% for the week as investors reassessed the outlook for US interest rates. Markets are now assessing the aftermath of US President Donald Trump's talks with Chinese President Xi Jinping, with investors weighing what the meeting means for trade, artificial intelligence, Taiwan and the Iran war. The pressure on longer-dated bonds has important implications for households and investors because Treasury yields influence borrowing costs across the economy, with higher government borrowing costs increasing the amount spent on interest payments and companies facing higher debt costs. Bitcoin (BTC) trades near $84,033, down 0.5% in 24 hours, according to BeInCrypto data, as the wide gap between US and Japanese rates keeps the carry trade open. Activity in Treasury futures was consistent with traders taking profits on those wagers, with a pair of block trades involving the five-year note and Ultra Bond futures contracts executed simultaneously shortly before 10 a.m. New York time suggesting the five-year was bought and the Ultra Bond was sold. As per NDTV, Friday's yield moves widened the gaps between short- and long-term yields, with key segments such as the two- to 10-year and five- to 30-year rebounding from the lowest levels in more than a year, reached earlier this week as short-term yield initially rose more.
