U.S. Treasury yields hit their highest level in more than two decades on Thursday as a global bond sell-off deepened, with the 10-year note briefly touching levels last seen in 2002. UK 30-year gilt yields broke above 6% for the first time since 1998, and German and French borrowing costs climbed as well. Rising oil prices and persistent inflation pressure are driving the moves.
The 10-year Treasury yield breached a level last seen in April 2002 before easing more than four basis points to 5.251%. The 30-year Treasury yield also hit its highest mark in 24 years before pulling back to 5.61%. Yields and prices move inversely, and the 10-year note is a key benchmark for rates on mortgage, auto and credit card debt.
UK gilts hit a 28-year high
Across the Atlantic, UK 30-year gilt yields climbed above 6% for the first time since 1998 before later trading at 5.95%. Rising yields on shorter-dated UK bonds will also drive up London's borrowing costs and add to the pressure on chancellor John Healey ahead of this month's budget. Britain's FTSE 100 closed down 177 points, or 1.68%, its worst one-day loss since May.
Elsewhere in Europe, the German 10-year bund topped 3.6%, its highest since 2008, before easing back to 3.58%. The French 10-year yield surged eight basis points to 4.925%, while Italy's 10-year yield rose 10 basis points to 4.706%. Guy Miller, chief market strategist at Zurich, said the moves in each market are feeding off each other.
Oil and inflation keep pressure on
Government borrowing costs are rising as investors weigh a lack of political will to tackle fiscal deficits while inflation remains above target and central banks lean toward further interest rate increases. Bonds are increasingly moving in lockstep with oil prices, and Brent crude rose more than 3% to $101.50 a barrel on Thursday as the U.S.-Israel war with Iran continues to restrict Middle East crude exports.
The U.S. manufacturing sector's prices index surged to 77.9, up 6.8 points, in September, according to the Institute for Supply Management, while order backlogs jumped 4.6 points to 56.4. Japan's 10-year yield stood at 3.126%, its highest since the mid-1990s, as the Bank of Japan's recent rate hikes add to pressure on the country's debt.
Sources: CNBC, The Guardian, Financial Times
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