Bond markets steady after Treasury yields hit 2002 high

A global selloff in government bonds pushed the 10-year US Treasury yield as high as 5.34% on Thursday, its highest level since 2002. The move followed the benchmark's largest quarterly rise this century. Bond markets steadied on Friday, Oct. 2. Bargain hunters returned, oil prices fell and investors waited for US jobs data that could shape the Federal Reserve's next move.zawya+2

The selloff spread well beyond the United States. Britain's 30-year gilt yield climbed above 6% for the first time since 1998, and France's 10-year yield reached 4.96%, its highest since 2002. Japanese yields also hit multi-decade highs. Rising yields push up borrowing costs for governments, companies and households. Freddie Mac said the average 30-year US mortgage rate jumped to 7.28% this week from 7.03%.euronews+2

Oil, inflation and debt

Analysts named several causes. Higher oil prices tied to the US-Israeli war with Iran have made the inflation outlook harder to read. Traders now expect at least three more Fed rate hikes by mid-2027, after the Fed raised rates in September. Heavy government borrowing has added pressure: US debt has passed \$40 trillion. So has borrowing for artificial intelligence. Alphabet ↗ 1.62%, Amazon Amazon.com, Inc. ↗ 1.33%, Meta ↗ 0.30%, Microsoft ↗ 0.92% and Oracle ↗ 3.06% have issued \$220 billion of debt so far this year, according to LSEG data.reuters+2

In a Heard on the Street column, The Wall Street Journal News Corp ↗ 0.64% argued that high oil prices set off the rout, but that debt levels made it worse. France and Italy, two of the most heavily indebted G7 countries, saw bigger jumps in 10-year yields than the United States. Axios pointed to a market-mechanics factor as well: some investors who hold mortgage bonds are selling Treasuries to rebalance their hedges, and that selling pushes yields higher still. "If nothing else happens this thing feeds on itself," said Priya Misra of JPMorgan Asset Management.tradingview+1

Friday's pause

Late Thursday, the 10-year yield eased back to about 5.24%, and Wall Street stocks finished slightly higher. On Friday, Brent crude futures dropped below \$100 a barrel and European shares rose. Germany's 10-year yield fell 10 basis points. France's yield was little changed, which pushed the gap between French and German 10-year borrowing costs past 150 basis points, the widest since 2011.economictimes.indiatimes+2

Forecasts for the September payrolls report centered on a gain of about 90,000 jobs. A strong reading could revive bets on a second Fed rate hike this month.reuters

Investors said the calm could be short-lived. "I wouldn't call it a crisis yet, but it looks like it has the potential to be one," said George Lagarias, chief economist at Forvis Mazars. "If it goes on for a couple more weeks then we'll be talking about a crisis in the bond market."reuters