The US Treasury successfully utilized its full $6 billion bond buyback limit on Thursday, retiring older long-term debt early as 10-year Treasury yields touched 5.342%, their highest level since April 2002. According to Reuters, the Treasury accepted $6 billion worth of bonds from $46.4 billion offered by investors, spread across just two of 41 eligible bonds. Both selected bonds pay low interest and mature in 2041 and 2042, with Treasury paying approximately $67 and $76 for every $100 of face value. At these prices, retiring $6 billion of debt cost roughly $4.47 billion in cash, marking a significant increase from recent operations that fell short of set thresholds. Treasury Secretary Scott Bessent signaled more aggressive action is possible, stating "We are going to make a market in these. We routinely do buybacks, and we're going to increase the size of the buyback … it could be more than $4 billion per issue."
Recent swap market data provides compelling evidence that Treasury and AI-related debt absorption remains manageable despite heavy issuance. As reported by Investing.com, swap spreads have been negative for years, currently sitting around negative 39 basis points, with the five-year average at negative 36 basis points. This suggests bond absorption has gotten easier, not harder, despite heavy Treasury issuance and recent AI borrowing. Swap spreads bottomed near negative 60 in April 2025 and have recovered somewhat, indicating that while Treasury yields are higher than riskier swap yields due to balance sheet capacity constraints, the market is absorbing the supply effectively. The data contradicts concerns that Treasury issuance is overwhelming the market, as swap spreads would be declining deeper into negative territory if absorption were truly strained.
US Treasury yields reached multi-year highs for a seventh consecutive session on Thursday, extending a historic bond-market selloff that has battered markets before a decline in oil prices helped stabilize the situation. According to Reuters, the 10-year Treasury yield rose as high as 5.342%, its highest level since April 2002, before easing slightly. The 30-year Treasury yield also climbed above 5.65%, reaching its highest level since 2002. The 10-year Treasury yield climbed 87.1 basis points during the September quarter, marking its biggest quarterly increase since 1994, as reported by LSEG data cited by Reuters. The sharp rise in long-term borrowing costs has intensified concerns over the outlook for inflation, government financing and economic growth, with the surge in longer-term Treasury yields raising questions about how much further the bond-market selloff can run. A yield is the return investors demand to lend to the government, and when it climbs, mortgages, business loans, and federal borrowing all cost more.
The 10-year US Treasury yield reached its highest level in more than two decades on September 30, climbing to 5.304% during afternoon trading after new data showed the US economy grew faster than expected in the second quarter. According to The Financial Express, the US Commerce Department revised its estimate for second-quarter economic growth to 2.2%, up from its earlier estimate of 1.5%. The yield surpassed the previous intraday peak of 5.303% set in 2007, marking its highest level since May 2002. The rise in Treasury yields came as investors assessed stronger economic growth and still-high inflation, while markets continued to watch the impact of the war in the Middle East on the US economy. Bond yields rise when prices fall, and the latest moves have reflected a broad reassessment of where interest rates may settle as inflationary pressures persist, with higher energy prices adding to inflation concerns. The 10-year Treasury yield climbed 87.1 basis points during the September quarter, marking its biggest quarterly increase since 1994.
Latest inflation data reveals concerning trends that are moderating Federal Reserve rate hike expectations. According to The Financial Express, the Federal Reserve's preferred inflation measure remained high at 3.4% in August, matching the revised rate for July. However, the personal consumption expenditures (PCE) price index rose 3.4% in August from a year earlier, down from 3.7% in July, with economists surveyed by Dow Jones expecting inflation to remain at 3.7%. The core PCE index, which excludes food and energy prices, also showed improvement, rising 3% year-on-year in August, down from 3.3% in July and below economists' expectations. As noted by Luis Alvarado, co-head of global fixed income strategy at Wells Fargo Investment Institute, the actual inflation experience and the pain in affordability that consumers and businesses are feeling is still alive and well. However, Investing.com reports that part of the apparent improvement came from BEA methodology changes rather than a clean deterioration in underlying inflation, with portfolio management services moving to a CES-based quantity series and legal services shifting to a new deflator.
Market expectations for Federal Reserve rate hikes have declined significantly following recent economic data. According to The Financial Express, expectations for an October rate hike had already fallen on September 29 after a Fed official said the central bank was not in a hurry to raise interest rates. The CME Group's FedWatch tool showed traders were pricing in a 35% chance of a quarter-point rate hike in October, down from about 51% a day earlier. Investing.com reports that the softer PCE print gave the front end a little breathing room and pushed October Fed hike odds down toward 40%, but the long end barely acknowledged the favour. For September, bond yields have advanced at their fastest monthly pace in years as the ongoing Middle East war has kept oil prices elevated and raised questions about when stubbornly high inflation will ease. Despite the temporary relief from the Fed official's comments, the 10-year Treasury yield ended the quarter with a sharp rise, gaining nearly 0.9 percentage points during the quarter, marking its biggest quarterly increase since 1994. The shift marks a significant change from earlier expectations that the Federal Reserve would move toward lower borrowing costs, with persistent inflation and resilient economic activity instead raising expectations that interest rates could remain elevated for longer.
The rise in US Treasury yields is creating ripple effects across global financial markets, with European bond futures also coming under pressure on Thursday, while cash bond markets in Australia, South Korea and Japan faced renewed selling. According to Reuters, the global rise in yields reflects a combination of inflation concerns, higher energy costs and expectations that strong investment in areas such as artificial intelligence and data centres could keep economic activity resilient. The rise in Treasury yields is significant because US government bonds serve as a benchmark for borrowing costs across global financial markets, with higher yields increasing financing costs for companies and households while raising the amount governments must spend on servicing their debt. For now, a decline in oil prices has provided some relief to bond markets by easing immediate inflation concerns, but investors remain focused on the possibility that higher energy costs, strong economic growth and large government borrowing needs could keep upward pressure on yields. Bitcoin topped $85,000 on Wednesday after cooler PCE inflation data, the Federal Reserve's preferred price gauge, but now trades at $84,624, up 0.9% in 24 hours, according to BeInCrypto price data. The September quarter's sharp rise in Treasury yields underscores the scale of the repricing across global fixed-income markets, with investors increasingly preparing for a period in which borrowing costs may remain substantially higher than previously expected.
